Is your business equipped to handle a cash flow problem?
Posted on: 16 September 2015 by Niamh Spence
Money problems can cause issues, so it’s important to know how to act. Affirmative Finance explains how a solid contingency plan can help your business.
No matter how hard we try and prepare for all eventualities, sometimes a business can run into unforeseen difficulty and encounter a cash flow problem. However, this doesn’t necessarily mean the end for your business and all your hard work, but rather it can mean employing a well-calculated contingency plan to help your company out of financial trouble and back on the road to success.
What is a contingency plan?
A contingency plan is defined as a strategy devised for an unexpected outcome. It is a method of risk management used to help businesses overcome a problem that has the potential to significantly impact their future unless avoided.
No matter how secure your business idea or how stable your company is, it’s always a wise idea to have a solid contingency plan in place should anything threaten your business; particularly of a financial nature.
A contingency plan can also be put into place in preparation for smaller disruptions to the running of your business, as well as larger issues. Loss of data, customers and the threat of competition are just a few situations that it’s worth preparing for.
What kind of issues does a good contingency plan cover?
Depending on the nature of your business, your contingency plan should cover a variety of risks. For example, if you are running a property development company you may consider the need to have a solid plan in place should you lose investment or financial backing. In this instance, you might plan to seek the help of a bridging loan to cover your financial gap or indeed to assist towards the whole of a particular development project.
Businesses face a range of threats to the smooth running of the organisation however, a solid contingency plan will make sure your company can overcome them. Here are a few common examples, so you can be sure your business is prepared for whatever the future brings:
There are many crises that can often cause difficulties or even spell the end of a business. Events such as fires, floods, injuries and potentially even angry or disgruntled customers can all affect your company.
A quality contingency plan will have a solid course of action in place for any crises your business encounters, and allow it to overcome such an event as easily as possible.
Assets and Security
Assets of a business, whether they are of a physical or an intellectual nature, can often determine the success of a business. If anything should threaten them it can be disastrous to a company, particularly if these assets are instrumental in the day-to-day running of a company.
Assets such as customer data, business secrets and key programs or equipment all need to be carefully guarded and a contingency plan should cover what will happen should any of these be stolen or damaged. Often the best course of action in this case is to seek legal help and minimise the damage caused.
A solid plan of action will allow a company to return to day-to-day operations as soon as possible. Occasionally an event will occur where this is not possible such as the death of a key member of staff or a threat to business operations, and a contingency plan will help to counter this. This might include insurance costs to keep a business afloat through a difficult period or financial aid to cover the cost of hiring temporary staff or specialist consultants to help the business overcome any problems.
One of the most common issues a business can encounter is lack of cash flow. Whilst this can happen for many reasons, if neglected the issue will only become more difficult to handle and could cost the business more than the initial sum. An effective contingency plan will have key steps in place to tackle this issue, such as seeking funding via a bridging loan or another option.
What do I need for my contingency plan?
It can be all too easy to complicate a contingency strategy or find the thought of putting an effective one together a little overwhelming, but the simpler and clearer you keep it, the better.
So to ensure your plan can help your business in the future, follow these simple guidelines:
Keep the plan simple – ensure that it’s clear, as you never know who might need to follow your instructions or put the plan in place.
Organise your time – create a step-by-step course of action that will make it clear how to act on the first day of the plan right through to the end. This will ensure you don’t miss out anything important and also allow your staff to follow the procedure easily too.
Identify the problem – for each problem, have a plan in place and even a member of staff who is responsible for each action.
Have a clear goal in mind for your business – have an aim in mind for your contingency plan, allowing you to work out a clear path for your business to return to normal operations.
- Seek expert help - often a business will need external help when it hits difficulties; particularly if a problem is financial. It’s therefore important to establish a relationship with a company you can trust in times of financial difficulty. These organisations will often have substantial experience handling financial problems so it can be helpful to know they will help your business overcome these difficulties.
Do all business have contingency plans?
Not every business will have a contingency plan, but a wise one will. Often when the day-to-day running of a company takes over it can be hard to recognise the importance of looking after your future interests. However, by devising a contingency plan now, you will be able to act quickly and effectively should a problem ever arise for your company.
Preparing an effective contingency plan may mean using time and money, which are valuable resources for any business, yet the costs of not having such a plan in place should your business struggle are even greater and possibly, more devastating.
Niamh Spence is a content writer for Affirmative Finance, a bridging loan company offering funding when you need it most.