Why is business resilience more important than ever?
By Hannah Butcher, Partner
Pandemics, geopolitical conflicts, trade wars and energy shocks, as examples, have introduced greater uncertainty, among other challenges, for UK businesses.
Resilience and adaptability have become central to the success of a business, helping them prepare for and overcome disruption, not if, but when it arrives.
Resilience should be built into the everyday strategies of businesses, moving away from rigidity towards a model that can be flexibly adapted.
What does business resilience look like?
Business resilience can be defined as an organisation’s ability to anticipate, absorb and adapt to changing environments and unexpected disruptions.
Greater preparedness reduces the impact of a shock, which can then be followed by a swifter and more complete recovery.
Prioritising resilience can be challenging due to conflicting interests and budgets, but there are a few key aspects businesses should consider.
Here are some key building blocks of business resilience, alongside some practical steps that can be taken:
Financial strength:
Having liquid cash reserves, a low debt-to-equity ratio and diversified revenue streams can all give a business the financial flexibility needed to absorb uncertainty.
If your business finds itself struggling to stay afloat during periods of downturn, you may look to implement a rolling cash reserve.
Setting aside a fixed percentage of monthly income into a liquid, high-yield account can help you build a reserve which can cover a few months of operating expenses.
Depth of leadership:
Concentrating the decision-making power in the upper rungs of leadership can leave a business vulnerable to changing circumstances.
To broaden leadership capacity, you could begin by mapping out decision-making.
Recording who is responsible for each decision and how choices should be made can eliminate bottlenecks and ensure a company ticks over without the top leadership present.
Adaptability:
Monitoring markets, technology and customer expectations keeps businesses informed and primed to respond to changes as they arise.
Your business can remain adaptable by implementing technology to track market trends and take client feedback on board.
Regular meetings, for example, every quarter, could be scheduled to review the information and implement changes based on the insights provided.
Strong systems:
Efficient systems and documented workflows can help reduce reliance on a select group of individuals.
By moving away from dependency on a handful of people, your business can successfully scale and continue to create long-term value.
This can be achieved by encouraging key members to rotate roles for a week every year can help to stress-test workflows.
Not only can a fresh pair of eyes help to identify dependencies and breaking points, but the exercise can also cross-train members of staff in other departments.
Moreover, critical knowledge can be transferred onto searchable online databases that are regularly updated, allowing team members to retrieve information on demand.
Diverse client base:
Relying on a small, homogeneous client base can leave your business exposed to changes in consumer demand and market instability.
To remedy this, your business could set an operational cap on the total share of revenue from a single client.
For example, if a client was to account for 10 per cent to 15 per cent of total income, a business may balance this out by actively shifting sales and marketing focus to new customers.
Strategic review:
Proactively auditing performance, identifying risks and capitalising on opportunities can deliver greater results down the line.
In order to ensure your business is ahead of the curve, quarterly meetings could be scheduled to identify scenarios which may have significant implications, such as losing a key client.
For situations that are identified as potentially disastrous, creating simple contingency plans can boost preparedness.
Likewise, regular check-ins allow your team to highlight where profits can be grown and competitors can be outperformed, ensuring your business remains agile.
Speak to an accountant
During uncertain economic conditions, an accountant offers more than just compliance support.
We can help you engineer rolling cash reserves, model different scenarios, stress-test cash flow and free up money tied up in inefficient tax structures.
By regularly auditing your business performance, we can help your business stay agile and equipped to handle the challenges ahead.
Is your business struggling to stay resilient in the face of uncertainty? Speak to our accountants for expert guidance.