4 Ways to Make Sure Your Business Survives the Unexpected

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Here are the four variables worth adding to your business and financial plan.

6 min read

Opinions expressed by Entrepreneur contributors are their own.

Entrepreneurs have a reputation for having a high-risk tolerance. Studies back up this stereotype, and I can too: Of all my clients, small-business owners are more daring when it comes to managing their financial assets.

This approach to risk is understandable. Entrepreneurs are often innovators willing to leave behind a “steady paycheck” to test the workability — and profitability — of their ideas. I’ve also found that this personality type tends toward optimism. Entrepreneurs’ great belief in the upside overshadows any downside. 

Experienced entrepreneurs also know the levers they can pull if things don’t go as planned. Or at least they thought they knew. We all thought we knew. Even for those of us who calculate risk for a living, 2020 was a curveball. But if you take an entrepreneurial approach, this past year provided a great laboratory for testing your relationship with risk. 

I’m not suggesting I liked 2020’s unprecedented disruption, but it did offer the opportunity to help clients experiment with new ways of doing business. I saw what was successful and where more planning was needed. And, like any good lab technician, I charted the results. Want to know the four variables that led to success during the pandemic? Read on.     

1. Keep a healthy stash of cash

The phrase “cash is king” was evident last year, especially in particular industries. A restaurant owner with enough cash to operate for 12 months had a better chance of surviving than one whose reserves only lasted three. Cash gives us flexibility, which was needed in ample supply during 2020. A proper cash foundation is also where we start with our clients. 

A company’s cash reserve policy is similar to a personal cash reserve policy: The soundness of your plan increases with your cash levels. At the very least, you need to have enough money for typical disruptions, like replacing a piece of machinery. You also need reserves or a well-designed insurance policy to cover uncommon but substantial emergencies — like if a hurricane damages your property and forces you to close down for months. 

Related: 10 Expert Tips on Managing Cash Flow as a New Business

2. Establish a strong banking relationship

If you don’t have a stash of cash, access to it — through a bank loan or line of credit — can also be advantageous during unforeseen, or even unfathomable, circumstances. And access starts with a good relationship. 

In the race to access the first tranche of the attractive SBA-backed loans known as Paycheck Protection Program (PPP) loans, borrowers with stronger connections to banks were more likely to have their applications approved, according to a National Bureau of Economic Research study. 

Knowing a banker personally can also help if you are considering selling your business. Bankers might help you shore up the balance sheet of your company before you shop it for a sale, for instance, or they could lend you money to finance an employee stock ownership plan (ESOP). 

Related: How to Qualify for an SBA Loan in 2021

3. Draw a line of demarcation (or even a thin veil) between your company’s risk stack and your own

Small-business owners are the face of their businesses. In many

Source: Entrepreneur.com

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4 Ways to Make Sure Your Business Survives the Unexpected

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