Business owners take risks every day. These risks are broad and include those that are controllable and others that cannot be controlled. Examples of risks that cannot be controlled are political unrest, war, the environment, currency fluctuations, and now a deadly virus, among others.
We are in the midst of an international crisis—the COVID-19 pandemic. It is something that the world has not experienced to this extent in modern times and is an uncontrollable risk. Every individual, family, business, and others are severely affected both emotionally and economically. This crisis is so broad and devastating, to business owners and with nothing like this in history to draw on, decision-making is difficult. It poses a significant uncontrollable risk to business owners and their stakeholders, such as employees, customers, supply chain, vendors, and their families.
So, what should a business owner do to prepare and mitigate the effect of uncontrollable risk and ensure their businesses are sustainable in times of crises?
We have a few solutions.
Access to Cash
Cash flow is a crucial element in financing the operation of a business. If there is a shock to the system, access to cash becomes critical to surviving. To the extent possible, have at least three months of fixed expenses in reserve. Plan on the crises to take more time and cost more than expected to be sure you can get up and going quickly and survive. Consider a plan to cover variable expenses, especially hourly employees.
Supply-Chain
We live in a small, closely connected world. We are connected not only by technology but by our dependence on goods we buy and use in all aspects of the supply chain. Historically, to reduce supply chain costs, companies pursued strategies such as lean manufacturing, offshoring, and outsourcing. This creates a risk to the company in the event of an uncontrollable supply-chain disruption, which we see now. Companies need to re-examine and make necessary adjustments and redundancy to their supply chain, so they can continue to manufacture and distribute products to their customers. This will include consideration of:
- customer demand,
- examination of inventory and lead times to anticipate possible disruptions,
- predict capacity, logistics, availability, and lead times; and
- other risks.
Contingency Plan
Regardless of the size of your business, it is imperative that a well thought-out contingency plan be developed, rehearsed, and documented for implementation. These plans are designed to guide management to help their organization in responding to an event that may or may not happen. The purpose is to help the business resume normal operations after a disruptive event like Covid-19. It accelerates the reaction time and could lower the risk to profits and revenues.
Risk Reduction
Risks are a part of doing business. However, the long-term sustainability of a business depends on the ability to manage and respond to risks as they exist. Risks come in two forms, those that are controllable, which are typically internal risks, that the company can put controls in place to avoid. The second type of risk is uncontrollable risk, which is generally an external risk that the company cannot control or influence. Insurance may be available to cover some of those uncontrollable risks, but risks such as the Covid Virus are usually uncontrollable.
There are many details to consider when managing risk, and the company should assess these risks and include both controllable and uncontrollable risks in the process. This is very important when entering the business sustainability and value acceleration process. Risk has a direct effect on accelerating value drivers, and mitigating value killers while improving sustainable company performance.
Sales Strategy and Channels
As the environment and the world change, so must the way business owners sell and distribute products and services and create opportunities to serve various markets. Business owners need to rethink their sales strategies and channels in times of crisis. A lot of people see online avenues for not just retail but also for service offerings. More conversations are taking place with video, chat, and other technologies. Online marketing and e-commerce are thriving. These new strategies and channels must be embraced and changed by businesses that never thought about them.
Innovation
Business owners need to look at their business and assess what they can do to operate a better and more agile business. Whether it is new product development, supply chain diversification, new and agile business, model, and others, it is important to be able to adjust to what is happening at the time. Innovation is a crucial element to sustainability and value acceleration.
This is the first in a sequence of articles that will provide you with actionable information that you can implement to create a sustainable business enterprise that has a culture of value acceleration. Stay tuned!
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