July 14, 2020

The Business File: Setting Up Your Business To Survive A Catastrophic Event  

Surprisingly — or not — disastrous events that take businesses down usually originate from within the business itself.

By Jennifer Dawson, Special to California Business Journal.

Fact: 65% of businesses don’t reach their 10th anniversary.

While it’s normal to assume that the product isn’t the right fit for the market, there are other reasons that could cause a business to close its doors.

Outside threats may also prove to be a significant risk to an entrepreneur.

However, as we said, many of the catastrophic events that businesses need to face originate from within the business itself.

Business Continuity Plan 

Businesses often have to face events that are unplanned, and when these events are larger than the average day at the office, they can be hard to mitigate. For business owners, a good place to put up some safety nets is to ensure that there is a business continuity plan that will cover the most likely (and some unlikely) events. Some of the aspects a business continuity plan will touch on include weather conditions that prevent the smooth running of the business, power outages and internet downtime, and the loss of key staff members.

Financial Resources And Backup Plans 

It’s not enough to have a business continuity plan if you have no means of following it up. Poor cash flow is one of the major contributors to business failure. It’s important to have funds available in reserves, access to a credit line if needed, and even assistance from the business owners by means of a capital injection. If the business is already going through the motions of financial distress, it might be prudent to approach institutions who are willing to look at a business rescue package. This will include loan restructuring that provides a means for the business to build up momentum while at the same time rebuilding its credit. This is especially important for businesses that have a hard time paying salaries and suppliers, as both are critical to the daily runnings of a business.

Scale At A Reasonable Level 

One of the biggest catastrophes that can hit a business, is premature scaling. This often happens to businesses that have tasted some success and now want to cash in on their success. For businesses who are considering expansion, it’s important to expand at a reasonable pace that can easily be absorbed by the business. This also allows constant market research to take place, which warns the business early on if expansion in a specific geographic location or product type is going to make financial and strategic sense. It’s easier to bounce back from a market tester than it is a full-blown expansion. It also means less fallout from a reputational standpoint, as it won’t have such a dire effect on local economies if things do go wrong.

For businesses to grow and develop into multi-generational businesses, or simply make it past that rocky first decade, it’s important to know what to do when things go wrong. By having a plan for each possible instance, business owners have the opportunity to ride out most of life’s hardest storms.


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