How Small Businesses Can Build Financial Resilience

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The economic winds in Australia are shifting in the same way as in other nations worldwide.

The sun still shines on many small businesses, but inflation is rising, and interest rates have climbed to 4.35%, the highest cash rate in over a decade.

Further, the uncertain disruptions in the supply chain cast a long shadow. In this turbulent climate, business resilience is no longer a luxury; it's an imperative.

Financial resilience means having actionable strategies like enough cash reserves and diversified revenue streams.

When small businesses are resilient, they can continue smooth operations even during difficult economic periods.

 

Understanding Financial Resilience

Financial resilience is a mechanism businesses adapt to cope with or recover from financial difficulties. The mechanism emphasizes having enough cash buffers, proper insurance, diversified revenue channels, and adaptive operations capacities.

Small business resilience is crucial because it enables them to continue serving customers and retaining talent despite market downturns, supply chain disruptions, or natural disasters.

Additionally, business resilience separates the small businesses that fail at the first signs of hardship from those that can adapt. With resilient strategies on standby, the latter adjust their products, services, functions, and operations according to emerging challenges.

Therefore, building resilience is the key for your small business if you're seeking sustainable growth and want to thrive in every situation. However, not opting for resilience means you aim to keep your business alive from one payroll to the next.

 

Small Businesses Can Build Financial Resiliency

Building a resilient small business is arduous and expensive. This notion isn't correct anymore. Resilience is not a that only some can achieve. If you're dedicated to improving your business, you can build resilience strategies by following the steps below.

 

Managing Cash Flow

Efficient cash flow management is critical for not only survival but also to upscale the business. By closely scrutinizing your accounts receivable and payable, you can ensure sufficient cash reserves. Adequate buffer cash helps with handling operative expenses, taxes, payroll and more.

Additionally, managing cash flow isn't difficult anymore with the presence of small business finance software. You can utilize tools like C-FINANCE to track invoices and payments. The tools also send automated reminders for outstanding dues so you can gain visibility into your cash position.

The software can also aid in preventing late payments to vendors while better forecasting. This allows your small business to find cost savings through more streamlined operations.

Additionally, when you have access to real-time cash flow tracking and projections, you can make data-driven decisions regarding growth planning, staffing levels, investment, and more. Better decisions mean improving profitability, strategic investment planning, and managing disruptions through adequate liquidity.

 

Diversifying Income Streams

You may have heard of never keeping all the eggs in the same basket. Exploring new income opportunities is vital for your small business, especially when facing economic adversity. While new revenue streams may not fully replace lost incomes, diversification can help you become antifragile and deal with sudden market changes.

Take Woohah Productions as an example. This audio-visual tech provider became famous for pivoting their warehouse into a streaming and visual events studio. Their smart move allowed them to stay operational despite COVID-19 lockdowns decimating their core events services.

Additionally, Arosh Fernando, Creative Director of Woohah Productions, built an online ticketing platform. Through this, he helped the event agencies and organisers make money on the live-stream and virtual events. Plus, doing so was all for good as they earned up to 20-30% of their monthly revenue through this gig.

Therefore, instead of thinking about a new stream when uncertainty hits you, prepare it in advance. Use monetizing data insights, explore overseas markets or flip products into services, and be creative about generating multiple income channels. Remember, tough times call for openness to opportunity.

 

Strategic Investments During Slow Periods

When the business is slow, you should see opportunities for strategic growth investments instead of shutting down things. There are a number of things you can do to build business resilience like -

- Upgrade the technology

- Streamline process

- Renovate premises on the cheap

- Upskill employee

- Create new marketing strategies 

Doing things differently during a slowdown will help your business bounce back when demand arises.

It's crucial to note that during the pandemic, many retailers had to switch to e-commerce models. This decision helped them build robust web stores and fulfilment capabilities that became invaluable revenue streams.

Many businesses also repositioned their products to align with emerging consumer interests like health and wellness. Rebranding as "natural" or "organic" helped cater to changing preferences.

 

Building Consistent Revenue Streams

A key pillar to achieving business resilience is cultivating consistent and predictable revenue through diverse customer segments. Your business shouldn't rely on a few high-paying clients or ad-hoc projects.

Instead, focus on developing recurring income via subscriptions, service packages, and consumable products. Furthermore, when you build a portfolio of retained buyers, it enables better cash flow forecasting to cover overhead costs.

However, you must note that for consistent revenue, you need a staff that's skilled and dedicated to their work and the company. You can ensure that by providing periodic and industry-level training to them. Additionally, choosing suppliers mindfully for high-quality products/services is of utmost importance.

Ultimately, it's the quality of your company's customer service that decides the position of your small business in the market.

 

Embracing Technology

To achieve small business resilience, you must tightly integrate investments in people, processes, and technology. Skilled staff delivers superior customer experiences, clear protocols, and automated systems that allow for maximum productivity.

Technology tools like small business finance software, digital payments, inventory optimisation tools, and data analytics can drive major efficiency. Additionally, cloud computing provides affordable and easily accessible infrastructure like CRM and analytics tools to monitor sales, marketing efforts, and other operations.

You can even deploy robotic process automation to perform repetitive back-office tasks that are error-free and faster, such as data entry, invoicing, reporting, and payroll processing. This way, your staff can stress about the tasks that require more attention.

Therefore, by continually optimising human talent with scalable technologies, your small business can elevate employee and customer experiences for resilient growth.

 

Achieving Financial Resilience Is Possible

If you're a small business owner willing to achieve financial resilience this year, you need to focus on these crucial strategies. Monitor the cash flow, diversify income, make strategic investments during a slow market, and introduce technologies to maximise productivity.

Adapting to economic shifts can be challenging for your business. However, if you perform regular checks on the financial health of your business and adapt accordingly, nothing can stop you from achieving sustainable growth.

 

*References

https://www.linkedin.com/pulse/building-financial-resilience-strategies-small-lana-sheppard#:~:text=Assess%20Debt%20Levels%3A%20Regularly%20review,unexpected%20expenses%20or%20financial%20downturns.

https://www.americanexpress.com/en-gb/business/trends-and-insights/articles/building-financial-resilience/

https://www.uhy-uk.com/insights/practical-techniques-financial-resilience-small-businesses

https://www.iosrjournals.org/iosr-jbm/papers/Vol22-issue6/Series-3/B2206030720.pdf

https://mainvest.com/blog/tech-driven-solutions-for-small-business-resilience

https://www.eomelbourne.org/blog/entrepreneurs-pivot-during-the-pandemic

 

 

Author Bio:

 

Troy M

Troy (Mitch) is a founder of ContinuSys, which is an Integrated Business Management system (IBMS) that helps organisations become resilient against short and long-term disruptions.

The IBMS ecosystem specifically helps businesses in developing and implementing robust business continuity plans to ensure uninterrupted business operations. Connect with Mitch on LinkedIn.

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