5 min read
Opinions expressed by Entrepreneur contributors are their own.
In the summer of 2020, the CEOs of America’s largest corporations penned a letter to Congress admonishing increases in aid to small businesses. With the wave of small business bankruptcies hitting record highs, these CEOs are worried that these businesses, traditionally cash strapped, may never recover without significant aid. It turns out, these businesses just weren’t prepared.
Even with hindsight, being prepared is incredibly challenging for small businesses and entrepreneurs in particular. Cash and resource-strapped entrepreneurs are often told to be “heads down” and focus squarely on “shipping product” rather than focusing on large scale externalities like natural disasters, pandemics or climate change; the traditional province of governmental institutions with larger-scale resources.
And yet, if there is one lesson to come out of the Black Swan event that is COVID-19, it’s that entrepreneurs may need to take up the slack themselves, collect resources and create a resiliency plan to ensure the survival of their business.
Luckily, Dr. Bradley Garrett has just released a new book titled Bunker: Building for the End Times, which proves to be an excellent resource for entrepreneurs desiring to create a resilience plan, put extra slack in their own system and minimize the negative consequences for their business.
There are some key insights from the book that can easily be distilled into lessons for entrepreneurs and all business owners alike.
First, entrepreneurs need to prepare for the unexpected and ensure continuity of their operations. Second, entrepreneurs need to think about financial security and having enough financial reserves to last for a long period of time in the event of any disaster.
Related: Prepare for the Worst, Hoping for the Best
Prepare for the unexpected
In the summer of 2003, a large swath of the eastern seaboard of the United States and Canada was affected by a blackout. Without power, businesses scrambled to cope and immediately shut down operations, losing hundreds of millions of dollars in the process. Once power was restored, many organizations created resilience plans to prepare for the next possible power outage. They wanted to prevent possible injuries and the potential loss of more revenue.
And yet, there’s a crucial mistake here: entrepreneurs and business leaders prepare and plan for what has already happened not for what can happen.
In this instance, entrepreneurs should focus on scenario planning.
The first thing entrepreneurs should do is focus on foundational bottom-level resiliency and ask themselves these questions:
- What are the essential and specific resources that are needed to run your business in the event of a calamitous event?
- What can happen that has the potential to fundamentally cripple the on-going operations of your business, like if all connectivity and electricity go down?
- What is your plan if a disaster impacts multiple transportation networks and you cannot get critical goods to their final destination for the customer?
Always imagine the worst-case scenario because the rest often takes care of itself. From this, develop foundational-level security for your business and build a buffer with additional resources, supply, capital and other factors that will ensure survival in the potential of a large scale event.
Related: Why Resilience Is the Key Ingredient for Successful Entrepreneurship
Earlier this year, I was sitting down with a fellow founder and I came away downright shocked from our conversation. His business was teetering on the edge of bankruptcy after only one month into the pandemic, and he did not seem phased at all. Did he not have any cash tucked away for a “rainy day?”
It turns out he did not.
And yet, the founder calmly explained to me that he often worked on just a few weeks’ worth of cash flow and that this had done his business quite well for a number of years. Like restaurants, hotels and millions of other small businesses, this founder thought that operating invoice to invoice or even paycheck to paycheck was a good approach.
With resiliency in mind, this approach is wrong. In many scenarios, there may be a fundamental disruption to the business that makes generating revenue impossible. In very short order, the business could be forced to lay off employees, downsize its operations, or even worse, liquidate.
With a little planning, there are two ways to avoid this scenario. One, entrepreneurs can save a portion of their working capital every quarter to ensure that they have enough on hand to cover expenses in the event of any destabilizing event. Second, entrepreneurs can work with lending services like BFS Capital or OnDeck to cover unexpected cash flow deficiencies that may arise and get them “over the hump” to the other side where they can thrive and grow.
The plan that works for you
Increasingly, many entrepreneurs are creating resilience plans to ensure the on-going operations of their businesses in the event of a large scale disaster. There are two key ingredients to these resiliency plans that are unfortunately often overlooked in the drafting process. First, entrepreneurs must seek the plan and acquire the resources for a foundational level of security to risks both known and unknown. Second, entrepreneurs must focus on financial security and either developing cash reserves to cover a shortfall or having a list of lending solutions available.