Seven tips for growing firms to improve business resilience

At a glance

  • Improving business resilience allows companies to take advantage of growth opportunities, as well as withstand adverse events such as losing a key client or supplier.
  • Attributes of a resilient business include having positive cash flow and strong reserves; a diverse mix of customers, products and suppliers; and contingency plans in place.
  • Keeping a risk register helps you to understand the potential threats to your business, the likelihood of them happening and how you would respond. You can model your strategy against these risks to test how your business would fare.

For growing businesses, it’s natural to focus on building your sales or creating cost efficiencies to increase your profits. But don’t overlook strengthening your organisation’s resilience in these early years.

With small-and-medium-enterprise (SME) numbers falling by 6.5% in 2020-1 and 1.5% in 2021-21, owners need to find more ways to withstand challenges such as economic downturns, natural disasters and market disruptions.

And improving business resilience doesn’t only help in the bad times. It also enables firms to avoid barriers to growth and take advantage of opportunities to scale.

What’s more, it could also affect your company’s value. Martin Brown, CEO of business-growth advisors Elephants Child, says: “If you want to sell, a buyer will expect and want to see evidence of resilience measures, such a risk register, business-continuity plan and insurance. Without this, their perception of risk will increase and negatively impact the sale price.”

What makes a resilient business?

For most SMEs, resilience revolves around earning enough consistent profit and cash flow to pay your staff, suppliers and other bills, such as tax. This avoids going bust due to lack of cash or bad debts.

But longer term, resilience is also about staying competitive, says Martin. This require s offering a product or service that is at least as good as your competitors’ while maintaining healthy profits. Another critical factor is remaining relevant to customers and constantly showing how you add value in changing market conditions.

To achieve this, you will need strong leadership and a sound business model and strategy.

Here, we break down seven ways to improve business resilience.

1.    Build a robust business model

This includes answering questions such as: have your products and services achieved market fit, and can you make and supply them in time and for a reasonable cost long term? Have you priced them in a way that ensures consistent profits?

If you rely heavily on one product, service, customer segment or supplier, look for ways to diversify, as this will improve your organisation’s resilience to adverse events.

The next stage is to create business-intelligence and key-performance-indicator dashboards to understand your financial reports and how to respond if necessary. 

2.    Develop business plans and model cash flows

Running out of cash is one of the main reasons businesses fail. This could be caused by weak sales or profit margins – for example, because costs are too high or you are undercharging for your product or service. It could also be due to growing too quickly, selling too much and running out of cash before payments arrive.

To counter this, set sustainable growth targets. Use rolling 13-month cash-flow forecasts, updated at least monthly, to help you never run out. If a fast-moving crisis, such as a pandemic, hits, you may need to update your forecast more frequently.

3.    Build strategic intent

When developing your business model, set robust, sustainable strategic goals. Where do you want to take the business over 12 and 36 months? This includes analysing your strengths, weaknesses, opportunities and threats, known as a SWOT analysis. Then look at your revenue drivers, core competencies, and where you need to work with external partners to help achieve goals.

Martin says scaling your business is another crucial way to become resilient as it can smooth income, help build a cash buffer, and make short-term challenges and stability issues less threatening.

4.    Manage your risks

A risk register can help you understand what potential hazards the business faces. For example, what would happen if your premises burned down? Or a senior team member left or became seriously ill? What about if your business is forced to stop trading temporarily (for example, because of a pandemic)? Record the probability of these risks, the potential impact, and how to prevent, mitigate, respond and recover.

You should also include the positive, manageable risks you need to take to achieve your goals.

5.    Manage product lifecycles

Businesses often introduce a product or service but then don’t evolve it. This risks making the product obsolete or less popular with customers over time. Proactively plan and manage product lifecycles through phases of introduction, ramping up, maturity, decline and upgrade or replacement.

6.    Stress test

Test your model and strategy against the worst-case scenarios identified in your risk register. How would your disaster-recovery and business-continuity plans cope? For example, what would happen if you lost your biggest client? Or if your sales dropped 60% – or increased 300%? What would that mean for staff, for the business’s processes, for your technology? If you’re planning to scale your business, are all supply-chain elements prepared to support that growth?

You cannot necessarily achieve robust resilience overnight. But you can work towards it in steps as you grow by developing risk-management capabilities, stress testing and what-if scenarios.

7.    Use specialist financial advice and protection

Financial planning can include modelling to help you maintain cash flow, and tax planning to ensure you are making the most of the reliefs and allowances available to your business and are using efficient capital structures.

Financial planning will also help you put the right insurance in place. SME owners often neglect people-related policies because they focus more on insuring plant and property. But often, when selling your firm, these policies are a vital requirement for potential buyers.

Alex Cleanthi, Head of Protection at St. James’s Place, says a key part of resilience for SMEs is safeguarding against disruptions caused by the loss of a pivotal team member. “Specialist protection advice will help establish a robust framework to bring peace of mind should this happen,” says Alex. “Business-protection professionals help SMEs understand who is indispensable to the business, and potential threats and vulnerabilities concerning individuals who have unique skills or are hard to replace. These may be founders, but they may also be relationship managers, IT heads or even personal assistants.

The main protections necessary to boost resilience are:

•    key person protection, which covers the cost of disruption if a pivotal person becomes ill or dies.
•    shareholder protection, which helps business owners maintain control if one of them dies or is seriously ill.
•    loan protection, which stops loans becoming burdensome if a key person is lost.
•    relevant life plan – tax-efficient life insurance for directors and staff.
•    group life insurance and income protection, to protect employee wellbeing.

How we can help

St. James’s Place has a specialist business-protection division with experts who understand the nuances and complexities of safeguarding businesses of varying sizes and in different industries. We work with SMEs to meticulously analyse and map out their unique threats, vulnerabilities and related insurance needs.

This helps owners understand how protection extends beyond operational continuity to foster an environment where businesses can adapt to changes quickly and fulfil their missions, even in adversity.

We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James’s Place.  The services provided by these specialists are separate and distinct to the services carried out by St. James’s Place and include advice on how to grow your business and prepare your business for exit and sale.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source

1Department for Business, Energy & Industrial Strategy, ‘Business population estimates and regions 2022: statistical release’, October 2022

SJP Approved 19/09/2023

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