As businesses face new challenges every day, we’ve learned that disasters and emergencies take many shapes and forms. In 2012, businesses in New York City faced a natural disaster in Hurricane Sandy, and learned how to create continuity plans from that experience. Fast forward to 2021 and the aftermath of COVID-19, business owners are asking the same questions: how do we protect ourselves from disasters that threaten to shut down our businesses permanently?
There are many lessons to be learned from these two crises that can help ensure business continuity in the future. Let’s take a look at our learnings and how you can apply them to a continuity plan for your small business.
What we learned in Hurricane Sandy and COVID-19:
Hurricane Sandy and COVID-19 are two of the worst disasters to ever affect the small businesses. Despite the differences in the types of disasters, there are a few similarities that we’ve seen between the two occurrences:
Proper documentation is essential: Businesses that had all their financial documents updated and ready benefitted greatly from their ability to quickly access relief programs. At the same time, businesses that kept poor records suffered as they either didn’t qualify for relief programs or had to wait much longer to receive them.
Business interruption insurance doesn’t help much: Through both crises, business interruption insurance did little to help entrepreneurs weather the storm. Many insurance providers refused business claims because business interruptions weren’t caused “at the business location,” and were due to acts of god or collateral effects of other impacted services (like the now-famous power outage at the 14th Street Con Edison powerplant in New York in 2012).
Businesses with flexible offerings survived: Business owners with business models that could be adjusted quickly, or expense structures that could be scaled up and scaled down quickly, were the ones that survived. Businesses that couldn’t operate in any way other than their status quo structure tended not to last.
Now let’s look at how you can apply these learnings to your business continuity planning.
1. Getting your small business documents in order:
Having your business’s documents organized and updated is important. Doing so will allow you to easily and quickly communicate your situation when applying for relief programs to get the help you need.
Make sure that you have physical documentation backed up with additional copies. During natural disasters, businesses that only keep physical records sadly lost them as a result of flooding or windstorm damage.
Keep your business’s critical records backed up in a safe space, with multiple copies, and virtually in a secure cloud storage account. The most critical documents to always have on hand include:
- Ownership information: your business registration documents, operating agreements, and bylaws. This helps to prove who owns your business.
- Accounting of fixed assets: this can be a digital or physical copy of the receipts or quotes for your business’s fixed assets (including your building, equipment, furniture, and more). They’ll be needed if you’re applying for government-funded programs to replace them.
- Last year’s tax return: You’ll usually need several years of tax returns when your business applies for relief. What’s most important is your tax return from the last year, or the last “normal” year to show you business’s usual financial situation.
- Sales data from your point-of-sale (POS) system: Make sure that you have access to your POS account from anywhere. Your sales data will play a big part in assessing your eligibility for recovery funds.
2. Diversify and identify revenue alternatives before the next crisis:
With the economy reopening, now is the time to make changes to your revenue model to ensure continuity. You don’t want to wait for the next crisis to start to create multiple revenue streams for your business.
Your business might have a product, service, or even a single customer that’s your “cash cow,” or the source of the vast majority of your revenue. While that might make it easy to run your business, it won’t do much to protect you if that source runs dry.
Diversification is key. Even if you develop secondary revenue sources today that bring in lower revenues for your business, they still have immense value for your business. In the event of a crisis, those revenue stream can be scaled-up a lot faster than launching new offerings from the ground-up.
For example, during the COVID-19 pandemic your business may have shifted operations to take online orders. Going forward, keeping the online version of your services up and running will be important even as in-person sales are possible. Should a similar crisis hit, your business can quickly and easily pivot to online sales again and maintain that revenue stream.
The aftermath of a crisis is also the perfect time to find alternatives revenue sources for your business. It’s a good idea to stick with your same target customer group and to keep your general value proposition. Within those boundaries, you can find many opportunities through horizontal integration.
Horizontal integration means taking a look at business opportunities that are supplemental to your offering. These are opportunities where your customer can purchase a new product or service at the same time as your current offerings.
For example, an event space might look to get into the catering, event production, or floral businesses. These sectors provide products and services that are a complement to the core business: people who are hosting events very often need catered meals, need to buy flowers, and need their events professionally produced.
“Horizontally” diversifying your business can also protect if another economic crisis occurs. It allows you to offer future value to customers that may be more resilient than your core business model.
3. Having scalable business expenses:
Making your fixed operating expenses flexible is the only true safeguard you have against sudden declines in revenue. If your business has high fixed operating expenses, you’ll be impacted more when revenues decline. This is because you’re already spending a lot of cash covering these costs.
Take a look at your occupancy costs, your labor, and your marketing costs. Map out what each of these activities would look like with a budget of 75% or 50% of your current normal budget. Then use this as a guide for what your operating model should look like in these occasions. Work out new agreements with your workforce that will enable you to still keep them onboard but have them operate part-time or contract basis if the company needs to tighten its belt.
Doing this work now will help you quickly make changes to where you operate, who works for you, and how you promote when revenues decline – lessening the impact of a crisis.
Understanding your business’s risk:
All of these changes need to be weighed against risks. As an entrepreneur, you could spend your time building out secondary revenue models and many more ways to protect yourself against problems down the road, but you also need to weigh them against probabilities.
Yes, it is likely that in the next ten years another crisis will affect the local economy: be it a natural disaster, public health emergency, or other economic disturbance. For this reason, it’s important to focus on the efforts that can protect you from the impacts and that don’t get in the way of your duties on a day-to-day basis: to grow our business’s customer base and presence.
Pursuit can help
If you need funding to support creating your continuity plan, Pursuit can help. We offer more than 15 business loan programs for nearly any business use. Contact us today to get started.