How To Financially Prepare Your Business For Unexpected Events

Tom Siska

Last Modified : Jan 23, 2024

The world is rapidly changing around us. Evolving geopolitical risks, banking system disruptions, emerging technologies, and a struggling economy are major global issues impacting businesses everywhere. As a result, it appears that no one can predict with any sense of certainty what to expect over the next few months and years. It seems that in the current economic environment, uncertainty is the one common denominator that ties everything together! In this kind of business environment, one of the best things companies can do is financially prepare their business for unexpected events.

For companies of all sizes, contingency planning with a strong focus on financial flexibility can enable your business to respond more effectively to unforeseen events and get back on track as quickly as possible.

This article shows how companies across all industries leverage the advantages of fast, flexible alternative lending to maximize their business resilience. The lessons learned may help you financially prepare your business for unexpected events.

Why prepare now?

The past few years have demonstrated that nothing is certain. A health crisis that disrupted global markets was followed by a robust recovery that morphed into an overheated economy. Costs spiked, as did interest rates as the Feds try to curb inflation. While some economists are projecting modest growth in 2023 and 2024, others are warning of the threat of recession. Expecting the unexpected is the new norm.

With this in mind, preparing your business for unexpected events is never too soon.

Start with a risk assessment

There are any number of unexpected events that have the potential to disrupt a business. Conducting risk assessments to identify potential events that could impact your business is a great place to start in contingency planning. Once you’ve researched, considered, and flagged the most significant possible risk events for your operation, develop a risk management plan and establish contingency plans for different scenarios.

Here are some common examples of unexpected events that companies often consider. Use these as a starting point to develop a list for your own business, and then rate your level of risk associated with each event:

• Loss of a significant customer
• Natural disasters
• Pandemics and health crises
• Cybersecurity breaches
• Economic downturns
• Political instability
• Supply chain disruptions
• Technological failures
• Regulatory changes
• Unexpected tax bills

A flexible financial structure is a critical element of being prepared

Having the foresight to prepare for unexpected events is a sign of effective management. However, planning is only half the solution to risk management – having a flexible financial structure to support those plans is critical to being prepared.

Conventional lenders are tightening the credit market in today’s economic environment of inflated costs, high-interest rates, and diminishing business performance levels. Few companies with traditional business financing have the room to expand credit limits or invest in diverse projects. In fact, many businesses have had their credit restricted by their conventional lenders.

At a time when flexible financing is most needed, businesses are struggling to manage financial obligations as increased lender oversight and tighter restrictions from conventional lenders are limiting their access to capital.

Alternative lenders provide financial flexibility

While conventional lenders utilize traditional credit assessment models, alternative lenders do not. Instead, they use advanced technology to quickly assess hundreds of credit-related data points to uncover untapped collateral strengths. This approach streamlines the credit approval process to meet the needs of cash starved businesses with fast, flexible financing solutions.

Financial flexibility leads to agility

Companies with easy access to flexible alternative funding options can fund investments in technology, efficiencies, and innovations designed to counter the negative impact of unexpected events. Additionally, having flexible financing at the ready (should an unexpected event occur) can help mitigate the event’s impact on your operations.

What are flexible alternative funding options?

There are many! Your company’s best business financing options will depend on your business needs and the lender you choose to work with. Let’s look at two of the most powerful alternative funding options available to access working capital and improve cash flow quickly.

• Asset-based lending (ABL): ABLs are business lines of credit secured on the value of your business assets. Accounts receivable, machinery, equipment, inventory, and real estate assets can yield significant cash. For example, your business could borrow up to 90% of its accounts receivable and 75% on the appraised value of inventory and M&E. Financing is fast and easy for businesses with quality assets on their balance sheets.
• Invoice factoring: This type of financing allows businesses to sell their accounts receivable invoices to a third party in exchange for a fee. This funding arrangement delivers cash immediately to the business upon selling a product or service. Once an invoice is issued and submitted for financing, funds are transferred within 24 hours instead of waiting several weeks or months for the customer to pay. With instant positive cash flow, businesses can easily access the working capital needed to support operations, pay bills, and respond to unexpected events.

Take additional steps to be prepared

Continuously monitor and adapt. Stay vigilant and regularly reassess your financial position. Keep an eye on industry trends, economic changes, and potential disruptions. Take advantage of improved access to capital to proactively support financial strategies to address challenges.

The following list is additional steps to prepare your business for unexpected events:

Diversify revenue streams: Relying heavily on a single product, service, or customer can leave a business vulnerable. Diversify your revenue streams by expanding your product/service offerings or targeting new customer segments to reduce dependence on a single source of income.

Build an emergency fund: Set aside funds designated explicitly for emergencies. Aim to accumulate three to six months’ worth of essential expenses to cover unexpected costs or disruptions in cash flow.

Maintain sound financial records: Accurate and up-to-date financial records are essential for understanding your business’s financial health. Regularly review financial statements, track expenses, and maintain proper bookkeeping. These work practices will help you quickly identify financial issues and make informed decisions during unexpected events.

Nurture relationships with your lender: Work closely with your lender to establish mutual trust and open communication. The best alternative lenders have dedicated account managers and in-house specialists with the knowledge and experience to provide valuable insights and recommendations. Leverage their expertise to help solve complex financial situations and overcome unexpected events.

Conclusion

In today’s world, businesses are exposed to numerous unexpected events. Hundreds of businesses fail each year due to being unprepared for significant disruption. Hence, managing risk by pre-planning for unwanted events should be an important strategic decision for all organizations, regardless of size.

Financial preparation for unexpected events is an ongoing process. It requires proactive planning, regular evaluation, and the willingness to adjust strategies. But, most importantly, you must have a flexible financial structure to support changing priorities and new objectives.

By taking proactive steps and having the financial agility to support operational changes, businesses can better withstand the unexpected and ensure long-term stability.

Tom Siska

Tom‘s impressive career includes transformative successes, solidifying his stature in the financial sector. Notably, he drove impactful Sales & Marketing strategies at Sterling Commercial Credit LLC, culminating in a game-changing acquisition.

At Grasshopper Bank NA, he played a pivotal role in establishing a thriving commercial and asset-based lending group and his skill in integrating and overseeing acquisitions at North Mill Capital underlined his strategic acumen.

His talent for nurturing winning teams and delivering transformative outcomes has yielded an impressive $100MM in stakeholder value across diverse startup and turnaround ventures.