How small business owners can prepare for tough times


Owning a small business gives us control over the products or services we sell, who we recruit, what we earn and, if we're lucky, even when we take holidays.

Having the power to make decisions over our commercial life is one of the primary reasons many small business owners, me included, run our own show rather than working for the man.

However, this control still doesn't give small business owners the power over external, unforeseen events. Natural disasters, pandemics, financial crises, cyber attacks and other troubles, from the death of a partner, a marriage bust-up to the collapse of a significant client, do happen.

how small business owners can prepare for tough times

Anne Nalder, founder and CEO of the Small Business Association of Australia, says preparing for unanticipated events is more complex than saving some spare cash. So, small business owners should create a plan of action for when disaster strikes.

"We are living in uncharted waters given the challenges the pandemic brought and the implications for the world," says Nalder.

"Due to certain governments and their actions, we have rising interest rates, rising inflation, rising energy prices and a shortage of skilled labour.

"For example, 70,000 or so more people left Australia in 2021 than arrived. All these negatives have the real ability to destroy businesses and economies."

Disaster mitigation 

By nature, many small business owners are optimists. Still, this bright disposition can be problematic if it means that forecasts are not accounting for possible challenges such as floods, bushfires, stagflation or a cyber attack.

That said, Nalder believes you can only plan so much.

"The most important factor in being prepared for an unexpected crisis is cashflow. This means monitoring cash inflows and outflows is crucial while keeping business costs under control.

"Trim as much fat as possible from the business, but don't allow the trimming to compromise its sales and quality."

If a small business runs into serious issues, Nalder urges owners to seek help earlier rather than later.

"If the business owner needs to exit, it is better to exit on their terms rather than being forced to sell. If necessary and practical, it might pay to refinance the business."

An accountant or another adviser can be a good source of support in handling cashflow and budgeting in a crisis.

While it's mandatory for some small businesses to have certain insurance, such as workers' compensation, this doesn't provide blanket cover against all external threats.

From the numerous types of insurance, it's essential to find the cover that suits your business's size, structure and industry.

For example, cyber liability insurance might be worthwhile if you sell products online or store sensitive customer information. A professional indemnity policy may be appropriate if you provide a service or give advice to your clients. This mode of insurance provides cover against any lawsuits filed against your SME.

According to Business Australia, small businesses can be easy targets for online crooks, accounting for nearly half of all cyber crimes. But it's impossible to protect your business unless you have identified its online risks.

This is an area where a cyber security expert can help. However, whether you take this step or not, what truly matters is using a logical framework to identify possible cyber risks and, from there, knowing how to fill the gaps to minimise your exposure.

For starters, update your software to counter recent viruses and attacks.

Turn on your filters to minimise spam and phishing emails, which can infect your computer or steal your confidential information. If you receive these types of emails, delete them immediately. A spam filter can minimise the risk of you or an employee opening a fraudulent email by accident.

Fit for purpose

Nalder also urges business owners to be mentally and physically fit in anticipation of the challenges ahead.

"Small business owners will be challenged like never before in our history. So, I advise business owners to ensure they are mentally and physically well as this will impact their decisions."

At the same time, they also need to ensure the wellbeing and welfare of their staff, Nalder recommends.

If something unexpected occurs, you might feel the pressure to work fast and, in the process, make an impulsive decision. But first talk to a business adviser, mentor  or accountant to help you come up with a calm, appropriate response.

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Anthony O'Brien is a small business and personal finance writer with 20-plus years' experience in the communication industry. He has a Master of Arts from Macquarie University, and has written for Money since 2001.