Editor’s note: this post is a guest submission from Irena Ducic of Embroker
Enterprises with extensive insurance coverage, sizable budgets, and a highly competent legal team can afford to take a few hits when the times are hard. But the same does not go for small businesses.
Even a seemingly trivial issue as a successful cyberattack can make a small business go under. A state-wide financial collapse, a disgruntled customer posting a terrible review, or a scorned employee pressing charges could mean the end for a small business.
This vulnerability means that small businesses need to play it smart if they want to survive. And as many as 67% of small businesses fail within the first ten years.
The main factors for a small business failing are a lack of funding (or capital), an ill-equipped management team, a flawed business model, inadequate marketing strategies, and an underdeveloped risk management system. Still, not every business is doomed - and as a business owner, there are steps that you can take to ensure that your business faces adversity prepared.
To help you make sure your business thrives in difficult times, we have put together a list of steps to take to ensure your business survives rough times in the future. If you play your cards right, you might turn the drawbacks to your advantage and thrive in a crisis.
Identify the problems
To pull your small business out of a difficult situation, you need to know what went wrong. Sometimes, it's an obvious problem.
For instance, you're running a restaurant during a virus outbreak, and people can't come to eat. Other times, it's a bit more complicated, and you need to do some detective work on your business. Your decisions, the market, and how you may have failed to meet your customers' needs. Additionally, sometimes a crisis might reveal unsolved issues about the way you run your business. Either way, before making a roadmap of potential solutions, you need to identify what went wrong.
Businesses that want to survive will need to adapt to changes quickly. It's good staying true to yourself and your vision, but sometimes changing the way you do business to fit the market is the right way to go. Take a step back and look at your successful competitors.
What are they doing that keeps them on top? How do you think customers' preferences have changed, and which businesses are the best at meeting the new demands?
Many companies have put in the effort to make themselves more Instagram-friendly. A few simple changes can ensure your customers are taking pictures and sharing visual content, impressed with the work you've done. This means years of free marketing and word-of-mouth recommendations to friends and family.
Know your numbers
More often than not, small businesses will struggle with unpredictable cash flow during a crisis. It's the main reason why most startups depend on seeds and outside funding instead of organic growth. Most businesses won't have enough cash saved up for rainy days.
To avoid this, you should be familiar with precise figures regarding the business's everyday costs. This includes fixed and varied expenses such as rent and equipment, as well as funding payroll. In the case of a disconnect, you are more likely to spend money inefficiently. The funds will naturally dry up over the years, or even months of not being in tune with your revenue and expenses.
Manage your growth carefully
Even the most hard-working business owners who account for every penny can lose track of their cash flow in cases of sudden, dramatic growth. Higher demand might catch you unprepared, unable to deliver your product/service. It requires you to hire more people, maybe change your business space, and come up with new solutions and investments, FAST. However, it is essential to avoid the pitfall of growing too quickly.
Meet with an accountant
As you work to stabilize your business, it could be a good decision to meet with your accountant. They will be able to help save a lot of money. There are several speciﬁc actions you can take to make sure you're paying less on your taxes. For example, you can:
Change the depreciation method used on your assets
Defer income to the following year
Restructure your business
Maximize expense deductions
Because tax laws are so convoluted, many of these strategies are not intuitive. An accountant can help you decide what actions to take.
Second, an accountant may be able to help you secure ﬁnancial assistance from the local, state, or federal government.
Additionally, given that small businesses are good for the economy, many government agencies are willing to provide ﬁnancial aid for struggling businesses.
The Small Business Association offers low-interest loans and grants, for instance. Some federal and state organizations will also offer relief programs for small businesses that are going through difficulties. A good accountant can help you apply for and secure government loans and aid.
Many business owners struggle to understand all the ﬁnancial details of their business.
This is completely natural and nothing to be ashamed of. But if you struggle in this way, it can be difficult to follow and be on top of important numbers like cash ﬂow and revenue. An accountant will organize and present all the numbers for you and then provide you with relatively easy-to-digest reports. They can also guide you as you make important decisions like what costs to cut.
Protect your business with insurance
When the unexpected happens, and your business is going through difficulties of any kind, having the right insurance program can mean the difference between going down and thriving for many small businesses.
This is why it's important to educate yourself on the potential coverages and how they can help your business. Let's breakdown the most important insurance policies for a small business:
Two basic coverages that most business owners should consider are general liability insurance or a business owner's policy (a combination of general liability, commercial property insurance, and business interruption insurance for small businesses). These policies will provide coverage for claims of injury and damages to third parties that happen on your premises.
Any business with employees should consider securing workers compensation insurance to protect against work-related injuries, such as slip and fall accidents.
Employment-related issues, such as claims of harassment, discrimination, failure to promote, and wrongful termination, are on the rise in today's litigious environment. The expenses associated with them can sink even the most financially stable businesses.
Having the right EPLI policy in place will help mitigate these risks by paying for your defense costs and settlements awarded against your business.
Businesses that offer professional services or advice should consider investing in Errors & Omissions coverage. No matter how good you are at what you do - mistakes can and will happen. This policy will reimburse your clients if your service leads to any damages and protect you in court if they decide to sue you over it.
Companies that store sensitive client information can be vulnerable to cyberattacks, as cybercriminals prize this information. As more and more aspects of a company's operations get digitized, they will have to be ready to face cybercriminals.
Having the right cyber insurance policy is a crucial step in this. A good policy will cover computer forensics, notification, PR, and business interruption expenses. It will also protect you against lawsuits brought by third parties that suffered damages from the cyberattack.
Each business is unique and has a unique risk profile. This is why it's wise to sit down with a good insurance broker and look into creating a tailored insurance program for your company - this will ensure that you're both adequately covered and aren't overpaying for insurance.