How to Manage a Business Crisis
When you’re running an SME, it can be comforting to think that a business crisis won’t happen to you. After all, you’re too small to make too many headlines. And you’ve got insurance for everything else, right?
As an SME, it can be comforting to think that a business crisis won't happen to you.
However, crisis management planning isn’t just about avoiding negative PR. It’s about making sure you’ve got the financial sandbags and expert support in place to weather whatever storm comes your way.
Because even when your business does everything by the book, none of us are immune to nasty surprises. Just take a look at the business crisis examples below to get an idea.
What is a business crisis?
Business crises can come in many forms. From simple things like an important member of staff stepping down, to major global events, here are the sorts of scenarios that every business should be planning for:
Natural crisis
eg. Flood, wildfire, storm leading to power cuts, pandemic.
Famous example: UK biscuit shortage caused by Carlisle factory flooding, 2015
Natural crises create the most obvious need for an emergency response. You’ll firstly need a plan to ensure everyone’s safety, before considering who’s in charge of what, what to do if your premises become unusable, and how you’re going to communicate. Other important considerations are things like backing up important data off-site, and of course, insurance.
Technological crisis
eg. Data breach, IT system failure.
Famous example: British Airways fined £20m over data breach, 2020
Did you know that UK small enterprises are targeted by around 65,000 cyber attacks every day? Fall foul of one of these crises, and you won’t just have the cost of downtime to deal with. The reputational damage of keeping customers waiting can be catastrophic for SMEs. There may be regulatory fines to deal with, too, if customer data is exposed. Strong security, company-wide training, and business disruption planning are your key defences here.
Personnel crisis
eg. A senior member of staff leaves abruptly
Famous example: Royal Mail chief quits with immediate effect, 2020
This type of problem is often overlooked in a crisis management strategy, but can be just as detrimental to business continuity as a flooded warehouse or IT failure. The key to a smooth transition is a good company culture. One where transparency, shared responsibility, cross-training and trust ensure your people want to, and are able to, step up and plug the gap while a longer-term response is sorted out.
Financial crisis
eg. Loss-making stock, unexpected drops in asset value, bad debt.
Famous example: Burberry burns bags, clothes and perfume worth millions, 2018
A business financial crisis can also take a few different forms. Perhaps an investment in an asset or new premises hasn’t paid off – consider selling or downsizing. Maybe you’ve got tangled up in bad debt – better credit control or a legal response could help here. Or perhaps there’s a load of obsolete stock you can’t sell – if you’ve tried a few different pricing strategies, it’s probably best to dispose of, recycle, or donate the stock, and write off the balance sheet instead. However, tread carefully. In avoiding one financial crisis, you might accidentally cause a PR crisis instead – as Burberry did in 2018.
How to financially prepare for a business crisis
Given the broad range of business crisis examples we’ve just seen, it’s essential that your business crisis strategy is strong and adaptable enough to cope with a variety of scenarios.
The first step is to identify and measure the risks. For the McVitie’s factory in Carlisle, mentioned above, the fact that it had flooded twice already meant there was a high risk of the same natural disaster happening again.
So when the time came for step two – examine and implement solutions – they made the financially savvy decision to invest in better flood defences, and hopefully prevent any future nationwide biscuit shortages.
Of course, not all risks will be this immediately apparent, or have such clear-cut solutions. So it’s important to dedicate in-depth thought and planning to risk management and mitigation – or outsource the process, and benefit from an external, unbiased perspective.
Finally, remember that the job isn’t complete once your crisis management plans are in place. Firstly, you must communicate your plans with stakeholders across your business, in a strong and positive way. And secondly, you must never assume your plans are set in stone. To be truly effective, an SME crisis plan should be a living document: always adapting, improving, and responding to the latest changes in your business environment.
How The Finance People can help
When you’re busy running a small business, taking the time to prepare a robust business continuity plan is often easier said than done.
That’s why at The Finance People, we’re proud to share our business crisis management expertise with companies of all shapes, sizes, and specialisms. Because with good financial planning, proactive responses, and an expert crisis management consultant on hand to help, there’s no reason why any business crisis should spell the end for your SME.
Talk to The Finance People today – or plan ahead with our crisis management outsourcing services.