HOW TO BUILD AN AGILE BUSINESS THAT IS IMMUNE TO SHOCKS

Upheavals, downturns and setbacks are experiences that every entrepreneur has experienced once in his lifetime. Shocks may come in the form of natural disasters, machinery breakdown, operations breakdown or loss of clients. What’s important in such cases is to acknowledge that there is distress and you have to navigate your business through it. While you can sit back and ponder about things that you could have done differently, the wiser option would definitely be planning the next course of action that you can take in order to maintain your position in the market and regain the financial stability back. The journey from financial shock to financial revival is surely shabby, but it’s worth the effort.

To begin with, you need to first find out the main causes behind the financial shock. Here are the possible reasons that might have landed you in trouble.

1. Breakdown in Machinery

Machinery breakdown has been identified as one of the primary causes of financial loss for businesses. In fact, a large number of corporate insurance claims are regarding machinery breakdown. There can be several factors leading to damage to the machinery including power fluctuation, overload, poor maintenance, natural disasters or crew negligence.

The sectors that are the most prone to hit by machinery breakdown are engineering, property, energy, and marine, among others. In addition to investing in getting new machinery, machinery failure also leads to a reduction or a complete halt in the product construction causing huge financial losses for the company.

2. Defects in Products

With the increasing influence of social media, there has been a growing awareness among people about their rights as a consumer. This has led to more number of people seeking compensation for faulty products.

Defects in products can result in financial losses at so many levels. From the need to roll back the entire production to paying hefty compensation as well as loss of reputation in the market, together all these factors can cause a heavy setback for your business.

3. Sudden Price Rise in Raw Materials

With such an intensely competitive market, it is important to keep your product moderately priced. And when the profit margin is low, even a small increase in raw materials prices can shake your financial planning. Increasing product price may decrease your sales and not increasing it means you are facing losses. And when your competitor is a big shot with a lot of money to invest in, the situation can go out of hand way faster than you would have ever imagined.

4. Market Instability

Market instability can have huge impacts on many businesses. A sudden stock crash, an unexpected financial bill, a change in governance, failure of commercial banks, indefinite strike of certain institutions, or a terrorist attack – there are tons of factors that can cause market instability, thereby causing financial setback for your business.

Building Financial Agility and Resilience of a Business

Overcoming financial shock and creating a business that is financially agile takes planning. Following these tips will surely help your business to deal with unexpected financial glitches and keep moving forward:

1. Keep Cash Reserves

Credits, assets, and shares are great must-have options. However, these are not much of a help at the time of a financial crunch situation where immediate money is required. Therefore, to keep your business running, it is always better to keep some cash reserves. When you foresee a trouble, be quick in liquefying some of your cash in hand. There is nothing more helpful than cash in hand at the time of financial crunch.

2. Maintain Good Credit Rating

When you maintain an excellent credit rating, you are able to secure more business financing in your terms. A good credit rating means you can easily borrow money at the time of financial issues, buy inventory on credit, cover payroll, and take care of emergency repairs or expenses. You will have a wider choice for investors and hence can make a decision that is in your favor.

3. Keep Track of Incoming and Outgoing Cash

A crisis situation means you will need more cash to balance the damage from the excess that is flowing out. This can happen only by ensuring a good debt management system. Ensuring regular cash flow is important for any business, especially to stay afloat. It is necessary to plan ahead so that there is always a larger cash flowing in than out. For this to happen, you will have to ensure that all your customers meet their financial obligations towards your business regularly and you maintain a detailed cash flow reporting and a well-planned debt management process. Don’t wait for a crisis to hit your business to change your cash flow system.

4. Focus on Customer Acquisition

Analyzing your current marketing strategy and implementing a new futuristic strategy to acquire more customers can have a positive effect on your revenue stream. Having a larger customer base will offset the loss of some of them. A higher number of customers will also mean a steady flow of revenue. This can provide a strong shield against tough times. So don’t hesitate to move ahead even if it requires some investment towards customer acquisition.

5. Strategic Financial Planning

Keeping a track of all expenses is important as is cutting back. Strategic financial planning that helps to differentiate between essential and non-important costs will allow you to regularize your cash flow. Start by cutting down on unnecessary expenses and find ways to automate operations. Look for alternatives and you will be surprised at how much you are overspending on simple operations. It might be a good idea to review your costs on business operations, real estate, staff and other overheads from time to time. If you can operate that online business from home, why waste that money on real estate. Being frugal is always prudent.

At the end of it, always remember that no matter how dark the clouds are, a financial crisis can be dealt with by a dynamic realignment of business strategies, resources and organizational structure. As challenges rise and ebb with economic cycles, we hope these tips will help you build a more agile company that can overcome any future setback.