The only thing for certain in business is change. Indeed, change is constant, often due or at least commenced, by evolving political, legislative, economic policies. With change comes business risk. Given change is a certainty, planning for it makes sense because this reduces business risk. To assist with this, we share below some tips we think businesses would be well advised to follow.
Businesses are stronger when their owners have a vision. That vision needs to be backed by a plan and a strategy to see it come to fruition. Vision, plans and strategies give a business direction, which when shared with employees, provides a pathway to growth. Given change is a certainty, business plans and strategies cannot be written in stone. Considering and planning for some ‘what if’ scenarios, therefore, can assist a business to quickly adapt its plan and strategy to changing economic winds, thus reducing revenue volatility.
Company owners who possess up to date knowledge of their business' financial health are in a good position to cope with change. This means owners should regularly review the business’ financial position, produce rolling cashflow forecasts, and complete best-case worse-case scenarios. By possessing the understanding such financial knowledge confers, an owner is able to spot potential shortfalls and make necessary adjustments in advance. This step reduces the risk changes in revenues can wrought.
Those companies that offer one product or one service are reliant on a single revenue stream to run the business and return $$$$ to an owner. This means the business is exposed to the risk of a sudden market shift or economic downturn. Diversification is key to reducing this risk. Accordingly, business owners should look for opportunities to add products and services because these strengthen the financial resilience of a business through generation of new additional income streams. Ultimately, this culminates in a reduction in risk exposure to change.
Changes in demand for what the business produces or the services it offers, can pose risk to a business. A way to reduce this particular risk is for owners to complete regular financial reviews of their businesses, focusing on business operational efficiencies. Specifically, this means removing inefficacies and creating efficiencies in the way products are produced, and services are carried out. Revising current and exploring new supply chains for products or outsourcing some part of a service for instance, can give a business the agility it needs to cope with shifting sands.
Broadening networks, enhancing stability and making the company a stronger proposition comes from building and looking after customer and supplier relationships. Thus, businesses owners should look for ways to strengthen and nurture existing relationships and add new ones. Customers who feel recognized and valued are more likely to stay and buy from a business. Suppliers who have strong connections with business owners are more likely to share knowledge and give advance warnings to business owners. Hence, business owners reduce risk of customers leaving and suppliers suddenly changing terms of trade when they have close communications with these key people.
We all know technology constantly changes. Those changes can pose both risk and opportunity to a business. For example, altered negative customer buying patterns can result when technology provides what a business offers. Similarly, technological advances can provide opportunities for a business to do things differently, enabling greater efficiencies. For this reason, business owners should stay informed with technologies applicable to their businesses, enabling them to alter their plans and strategies where necessary to cope with and capitalize on changes.
Where politico-legislative-economic events can introduce instant change in the market and consequently, immediate change in your business, planning for business instability is vital. Accordingly, planning for change is a sensible path to tread. The steps we’ve recounted above, do just that – help a business owner identity risks and implement steps to reduce those risks their business is exposed to through change. If you think your business would benefit from a review or if you need assistance implementing our recommendations, contact your Lion Accountant at Greenlion who is well versed in business changes.
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