Every entrepreneur I have talked to has told me stories of things which have gone wrong: missed deadlines, cancelled orders, payments not being received, employees leaving at critical times, people getting ill, new competitors and so on.
Even a great business won’t be immune to problems and those that are not planned for can do real damage to the business.
What you need to do is to test various scenarios to ensure you know what decisions you would make in the event of a serious problem.
Once we understand the worst case, we can put in place strategies to cope, mitigate, avoid or respond.
It is not that this becomes the business plan, we should still plan for what we realistically expect, but we should have fall-back strategies in case things go wrong.
In preparation, we might arrange additional funding sources, cross-train staff, plan for succession, have back-up plans for generating income, plan to delay discretionary expenses and so on.
Understanding where the risks are and what tactics can be employed is the smart way to cope with future problems.
Banks are not in the risk business. The margin they have between the rate of interest they pay on deposits and what they charge on lending is often as low as 2%.
It takes a lot of banking business to recover from a bad debt. That being the case, you can’t expect them to support you if they don’t know what is happening in your business and they have no basis on which to make a judgement about your ability to manage through a dip in revenue.
They are not your friend and they are not a shareholder in your business, but they are a supplier and an essential one at that.
Banks will react quickly if they think their money is at risk. They have been known to seize money in accounts just at the time you are about to pay payroll or your suppliers.
Basically, if you don’t keep them up to date and provide them with a view of your future business, you can’t blame them for overreacting.
They need to know about your business and the manner in which you tackle problems.
The earlier you can inform them of a problem situation and show them how you will manage through, the greater the chances you will have their support.
They also do not want to meet you when you have an immediate problem. You need to update them on a regular basis and show you can manage good times and bad.
The first objective of any business is to survive, so strategies which improve business resilience have to be high on the agenda.
We only get to do the interesting things in our business if we last long enough to have the time and resources to do them.
One of the most successful strategies to create resilience is to build up the level of recurring revenue in the business.
By recurring revenue I mean revenue which the firm can rely on even in an economic downturn. You should review how you can implement long-term customer agreements, loyalty schemes, customer engagement activities, customer entanglement strategies and on.
Develop products and services which sell back into the existing customer base such as maintenance, auditing, training, accessories, upgrades and so on.
You need to create reasons why your customers need to come back for additional products or services.
Creating good customer experiences can also improve the resilience of the business if it results in repeat sales or a high level of referrals.
A healthy business might aim to have 50% of its business from its current customers. This provides a solid buffer for economic downturns or new competitors entering the sector.
Can you really be sure that you have done everything you need to do to meet all your compliance requirements?
Can you be sure there are no errors in your systems which are misleading you or that proper authority has been applied to all the expenses?
It would be a rare entrepreneur who claimed he knew enough about his business and about the legal obligations to state that he wouldn’t benefit from a proper independent inspection by experts.
Apart from making sure the systems are working correctly, the compliance obligations met and any serious errors detected, there is a great deal of comfort to the entrepreneur in having an independent audit. In a way, it is a method of being accountable to yourself.
You want to know that you have done the job correctly, you have not overlooked something important and your systems are operating correctly.
You also want the advice which comes with the audit on how you could improve your systems.
It is important to know that you have your accounting and other governance information up to date if you need a loan or wish to entice an investor into the business.
This is something you cannot leave to the last minute.
You need to ask your customers what they think about your products and services. The key to high growth is satisfied customers.
This results in repeat sales, referrals, a positive reputation and employees who are appreciated and therefore more productive as a result. But this shouldn’t be guesswork.
You need to actually make the effort to periodically check with your customers to ensure you are meeting their requirements.
It is very easy for a company to become complacent and gradually lose its way through over confidence. Every now and then you need to collect the evidence to show you are on track.
What you will find is that not everything is being done correctly. There will always be situations which were not performed well, customers who did not have the best experience or products which did not quite live up to their reputation.
The key is to find out so you can do something about it. On the other hand, positive feedback can be shared across the organisation.
Employees like to know they are doing well, especially in the eyes of their customers.
You can also use customer surveys to find out how you could further improve your products and services and what else you could do which they would value.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.
Andrew Sadauskas is a former journalist at SmartCompany and a former editor of TechCompany.
