How to Build a More Resilient Business: 5 Areas Every Small Business Should Review

Growing sales, winning new customers and increasing profits are all signs of progress. But does growth automatically mean your business is getting stronger? Not necessarily. A business can be growing quickly and still be vulnerable. It might depend too heavily on one customer, one supplier or one key person. It could have plenty of work coming in but very little spare cash. A cyber attack or the loss of a key employee could cause serious disruption. Business resilience is about being prepared for problems like these and making sure your business can continue operating when something unexpected happens. In the earlier articles in our SMEs in a Riskier World series, we looked at business strategy, cash flow, stress testing and risk management. In this article, we bring these areas together and look at practical ways to build a stronger and more resilient business.

1. Start by looking at what your business depends on

Every business has things it cannot easily operate without. For your business, this might be:

• a major customer
• a key supplier
• an experienced employee
• you, as the business owner
• a particular piece of equipment
• your IT or accounting systems
• access to finance

Think about each one and ask a simple question: What would happen if we suddenly didn’t have this? For example, if one customer accounts for half your sales, losing them could have a significant impact. If you rely on one supplier, what would happen if they could no longer supply you? If your business relies heavily on your own knowledge and relationships, what would happen if you couldn’t work for three months? These questions aren’t about expecting the worst. They help you identify where your business may be vulnerable while you still have time to do something about it. Our earlier article, Risk Management Made Simple, explains how a simple risk register can help you identify and prioritise these risks.

2. Don’t assume growth means your business is getting stronger

Imagine two businesses with the same annual sales. The first is growing by 20% a year, but half its sales come from one customer. It relies on one overseas supplier and regularly uses most of its overdraft. The second is growing by 8%, has a wider range of customers and suppliers, manageable borrowing and some cash put aside. Which business is in the stronger position? The faster growing business isn’t necessarily the answer. Rapid growth can put pressure on cash, employees, systems and the owner’s time. You may need to recruit people, buy more stock or equipment and spend money long before your customers pay you. This is why growth needs to be planned carefully. Sometimes growing a little more slowly while strengthening the business can put you in a much better position for the future.

3. Build a financial safety net

Cash gives a business options. If sales fall unexpectedly, a customer pays late or an important piece of equipment needs replacing, having some cash available gives you time to respond. Look at:

• how much cash you normally keep available
• how quickly customers pay you
• how much borrowing you have
• what credit facilities are available
• which costs could be reduced if necessary
• what large payments are coming up

Cash flow forecasting can help you see potential problems before they reach your bank account. It is also worth stress testing your forecast. For example: What would happen if sales fell by 20% for three months? What if customers started paying 30 days later? What if your main costs increased at the same time? You don’t need to predict exactly what will happen. The purpose is to understand how much pressure your business could cope with and what you would do if circumstances changed.

4. Reduce the risk of everything depending on one person

For many small businesses, one of the biggest risks is also the person who made the business successful in the first place. The owner may hold the important customer relationships, know how every process works, approve payments and deal with suppliers. Key employees can create the same risk. Ask yourself: Could the business continue operating if I couldn’t work for three months? If the answer is no, think about what you could start putting in place. This might include documenting important processes, training other members of staff, sharing key customer relationships and making sure someone else knows how to deal with important suppliers or systems. The aim isn’t to make people replaceable. It is to make sure the whole business doesn’t depend on one person’s knowledge or availability. This can also help the business grow because more responsibility can be shared rather than everything continuing to come back to the owner.

5. Have a backup plan for suppliers, technology and other essentials

Think about the things your business needs every day. What would happen if your main supplier couldn’t deliver? Could you work if your premises became unavailable? What would happen if your computer systems went down? Could you still contact customers? You don’t need a backup for absolutely everything. Focus on the things that would cause the greatest disruption.

Suppliers

If you rely heavily on one supplier, consider whether there are suitable alternatives and keep their details available.

Technology and cyber security

Most businesses now rely heavily on technology, which creates its own risks. A cyber attack or system failure could stop you working, expose confidential information or affect customer confidence. Basic precautions include keeping secure backups, using multi factor authentication, updating software and making sure employees know what to do if they receive a suspicious email or notice something unusual. You should also know what you would do if an important system became unavailable for a day or two.

Changing customer requirements

Larger customers may increasingly ask suppliers about environmental standards, working practices or their supply chain. For a small business, these requirements can have a financial impact if they affect your ability to win or keep important contracts. Think about what your key customers may expect from suppliers over the next few years and whether there are any changes you should start preparing for now.

Resilience also means being able to adapt

Business resilience isn’t only about surviving problems. It is also about being able to respond when circumstances change. A competitor may leave the market. New technology may change what customers expect. A supplier may become too expensive. New rules may increase your costs. There may also be opportunities that didn’t exist six months ago. A resilient business has enough cash, information and management capacity to make decisions rather than simply react to the latest problem. This is where the different parts of this series come together. Your strategy gives you direction. Your cash flow forecast helps you understand what you can afford. Stress testing helps you see what might happen if things don’t go according to plan. Risk management helps you identify where your business is vulnerable. Building resilience helps you prepare for those risks and adapt when circumstances change.

Five things you can do this week

You don’t need a complicated business continuity plan to get started. Try these five things:

1. Identify the five things your business relies on most.
2. Ask what would happen if you suddenly lost each one.
3. Check how long your current cash reserves could support the business if sales dropped.
4. Identify one important task or customer relationship that depends too heavily on one person.
5. Test one of your backup arrangements rather than assuming it will work.

Even one or two small changes could make your business better prepared for an unexpected problem.

Final thoughts

Growth is important, but it shouldn’t be the only measure of a successful business. A strong business should also be able to cope when things don’t go according to plan. That means understanding your cash position, avoiding too much dependence on one customer or supplier, making sure important knowledge isn’t held by just one person and having sensible backup plans for the things your business relies on. You cannot prepare for every possible problem. But you can build a business that is better able to deal with them. And when opportunities appear, a resilient business is often in a much better position to take advantage of them.

How resilient is your business?

If you’re not sure what would happen if sales dropped, a key customer left or you were unable to work for a period of time, it may be worth taking a closer look at where your business is most vulnerable. At RMC Accountants, we can help you look at your cash flow, financial position and business plans and identify practical steps that could make your business stronger. Get in touch with RMC Accountants for an initial conversation.

Frequently Asked Questions

What does business resilience mean?

Business resilience is your business’s ability to deal with unexpected problems, continue operating and recover afterwards. This can include financial problems, losing an important customer or supplier, staff shortages, technology failures or other disruptions.

How can a small business become more resilient?

Start by identifying the people, customers, suppliers, systems and sources of finance your business relies on most. Then consider what would happen if one of them suddenly became unavailable and what backup arrangements you could put in place.

How much cash should a small business keep in reserve?

There isn’t one amount that is right for every business. It depends on your regular costs, how predictable your income is, how quickly customers pay and the risks your business faces. A cash flow forecast and stress testing can help you work out what may be appropriate for your business.

What should a small business continuity plan include?

Focus on the things that would seriously affect your ability to operate. This could include key people, suppliers, technology, premises, customer communications and access to important financial information. Your plan should explain what you would do if one of these became unavailable.

Why is relying on one large customer risky?

A large customer can be very valuable, but if they represent a significant part of your income, losing them could quickly affect your cash flow and profitability. Understanding how dependent you are on individual customers helps you decide whether you need to build a wider customer base.