Are You Financially Prepared for the Unexpected? 4 Tips to Help You Stay Profitable, Whatever Happens
This article was updated on September 18, 2018.
It can be hard enough to maintain your small business budget when everything goes smoothly. But when you run into unexpected problems, such as a broken down delivery truck or burst pipes, keeping your business profitable can become even more challenging. This is why it's important for you to develop a plan for how you will manage the financial hit from these types of problems before they come up. Here are some tips on how to prepare:
Run a Business Impact Analysis
In order to run a business impact analysis, you must make a list of potential problems and try to estimate their financial hit. You should consider expenses such as those involved with lost sales, repairs, replacing lost inventory, clients breaking their contracts because of the delay and potential fines.
For example, if you lost power for a day, you would estimate the loss as a day's worth of sales, the replacement of any inventory that went bad and the potential cost of hiring an electrician to repair your power.
Establish an Emergency Fund
Unexpected problems are going to cost you money, no matter what. If you don't have the cash on hand, it can quickly turn into an emergency because you'll be put into a situation in which you'll have to borrow the money. To help ensure that you can always pay your bills, you should establish a business emergency fund in anticipation of these problems.
Help Protect Your Business With Insurance
The right insurance policy can mean the difference between paying your bills and your business shutting down. If you can afford it, you should invest in commercial property insurance for your building, vehicles and machines. If any serious damage occurs, your insurance company will help pay for the repairs for covered claims. Business interruption insurance can also be very useful. This type of coverage can be used to pay your covered daily expenses, such as rent, employee salaries and utilities, when your business has to unexpectedly close.
Put Proper Precautions in Place
The best way to maintain your budget is to do what you can to prevent expensive problems from arising in the first place. Make sure to stay on top of all the maintenance for your building, vehicles and equipment. A regular tune-up is a small price to pay that may help in order to prevent a potential costly disaster from taking place. You should also take the necessary steps to help prevent fires, theft, dangerous spills and other workplace accidents. For more information, ask your insurance company if they can advise you on loss prevention. Some organizations provide this service for free because they want to help mitigate costly problems that can arise.
Unfortunately, many businesses do not make an effort to prepare for unexpected situations. By following this advice, you can help maintain your small business budget even when times are tough.