Businesses are often so focused on staying afloat that worrying about potential disaster is rarely front of mind. Yet financial emergencies can decimate your business if they catch you unawares.
Thinking ahead about how your business would cope and manage if the unexpected happens can pay dividends. An emergency fund is a good starting point to cover yourself and your company, even if finding the money to set aside is not always easy.
It's also worth bearing in mind that while some types of emergency will inevitably be beyond your control, there are others that many business owners experience. A little planning and figuring out how you would deal with the following emergencies can go a long way in helping if disaster strikes.
1. Losing your biggest client(s)
One of the most common—and hardest to prepare for—financial emergencies is the departure of one or more highly valuable clients. Large clients are important for company revenue, but they also put your company at risk of being left high and dry when one leaves.
If your company has one client or a small group of clients that makes up a huge portion of your business, take that as a sign it's time to spread out. Even if your business is not taking on new clients, keep a healthy and updated list of potential leads you can turn to if (or when) your biggest customer or group of customers move on. Client diversification is a great way of putting the principles of financial risk management into practice for your business.
2. Investment failure
Any investment you make comes with the risk of a sudden decline. While investments can be a valuable part of any business's financial plan, it's important to ensure that your company always has enough working capital free to continue operations in the case of unforeseen downturns.
Treat your investments a bit like you treat your clients: Big ones that pay well are nice, but they carry a lot of risk as well. Diversify your portfolio the same way you'd diversify your client base, in both size and type. Develop a financial risk mitigation plan that keeps your company solvent in the case of investments falling through. Then use that plan as a guideline for making smart investments in the first place.
3. Environmental crises
For some businesses, a flash flood or landslide caused by extreme weather can pose a threat to financial security. The most important step to take when preventing fiscal fallout from a weather or environmental crisis is insuring any property or assets that could be at risk.
Insurance will help you bounce back from a weather-related crisis in the longer term. In the short term your business will need to continue to function. Make sure you have a complete plan for your company and keep your balance sheet up to date. If the office is unusable or employees can't get to it, create a way for everyone to work from home. If you need a backup server, locate one—or create a partnership to access one—in advance. Try to find ways for operations to continue as close to usual as you can.
4. Funding falling through
Financial backing is key for getting any company off the ground and into the marketplace. While larger companies might not be as concerned with losing funding channels as small businesses are, the loss of capital can be a bad situation for any business looking to maintain normal operations.
Business funding can be a hard thing to say no to, but choosing the right backers early on can help you avoid unfortunate capital losses in the future. Look for backers with a history of stability and a reputation for following through on promises. As helpful as getting funding at the right time can be, losing it at the wrong time can do irreparable damage to your business. While it's best to try to prevent this from happening to begin with, you can prepare for funding losses by constantly staying aware of potential backers and lines of credit you can open up in emergencies.
Preparing in advance
At some point or another, every business is likely to experience a financial emergency. Taking time to think about how you will cope when that happens will help get you through it and achieve your ultimate business goals.
If you're looking for other ways to maximise your cashflow, an American Express® Business Gold Card could keep your balance sheet on track. Unlike a credit card, it's a Charge Card, so you repay the full balance each month. But since you won't be charged interest, there's no pre-set spending limit and you have up to 54 days to pay for your purchases.1
This means you always have the funds you need to cover any unexpected events if and when they occur.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date.
2. If you’d prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Basic Card.