«We’re living this like a movie, a scary movie.» This was the beginning of one of the many announcements that have flooded the net these days and which so well reflects the uncertainty that many entrepreneurs are experiencing. And perhaps it is for this very reason, because of the fear generated by the current situation and how we will get out of it and in what way, that I have dared to write my own.
How much longer will this crisis last? How will I face the coming months? And now, will I be doing well?… If I lose customers, will I have cash flow to meet payments? But, if I can’t finish the current production, will I be able to serve my clients?… And my employees, how are they managing it? Will my commercial pipeline for the next few months be fulfilled? And if I have to do without someone from my team, do I request an ERTE or an ERE?
All these questions, and many more, are the ones that are taking away the sleep of our business fabric. The fear of making a mistake, the fear of not valuing all the possible options, or simply the lack of tools that provide a complete picture of the company’s situation are the main impediments in the unavoidable decision making at this time.
Companies must be prepared to face any risk situation. Reacting in time and form will be the key to their survival. But how to do it in the right way? Through a contingency plan
This business tool establishes a set of organizational, technical and human measures whose main objective is to ensure business continuity, as well as to define an action plan based on prior knowledge of all the company’s assets, in order to address any type of risk.
In order to guarantee the reliability of the contingency plan, it must consider both material and human resources, assigning responsibilities, roles, implications and action protocols for each of them. It is therefore essential to carry out a prior risk analysis.
What questions should I be asking myself
As we have been finding more questions than answers for a few days now, it would be best to make the right ones in order to establish that starting point and thus the roadmap. Namely:
- What goals should we achieve?
- How does this crisis affect our company?
- What will be the concrete impact on each business line or area of activity?
- What has been the line of communication with customers and suppliers?
- How does this situation affect suppliers? What is the impact on the company?
- What is the turnover forecast for the months of April, May and June? How is turnover behaving today?
- Are there or could there be limitations in the performance of the work in progress?
- What objectives have been established per customer?
- What are the objectives of each employee during the crisis? Are they clear about their tasks and what the company expects from them?
What can help me to cushion the effects of this crisis
Crises do not come on their own, they do not give us advance warning or anticipate what will happen tomorrow, so in such a changing environment, as a crisis, everything happens very quickly, including decision-making.
With all this, we see the need to be prepared based on four premises: having a clear initial picture of the business, operational and financial information; knowing how to interpret the information correctly and accurately; making decisions based on a defined action plan; and weekly monitoring of actions and monthly action plan against changes or deviations.
What I need to be clear about
It is therefore necessary to draw up a contingency plan that answers the following questions:
- Definition of the lines of business or clients that provide the greatest profitability.
- Making a cash flow forecast based on three different scenarios: pessimistic, realistic and optimistic.
- Projection of the financial forecast at the end of the year based on the aforementioned scenarios.
- Monitoring of the client portfolio
- Analysis of the client portfolio and establishment of an action plan for each client during the crisis and post-crisis
- Assignment of objectives and tasks for each employee, as well as individualized weekly follow-up
- Analysis of value per employee and its impact on the company’s income statement
- Market study and identification of sectors and companies that are benefiting from the crisis in order to reorientate commercial strategy
In conclusion:
By drawing up a contingency plan, we can compensate for the lack of control in a situation like this. Or in other words, we manage to mitigate the negative aspects of any crisis as much as possible and minimize its impact on the company’s income statement in the medium to long term.
The key to good business management of a crisis, without fear and with uncertainty and emotions at bay, is to bring decision-making to planned, controlled and timely scenarios.
Because there is no point in having all the possible information gathered, without an interpretation of it. Therefore, it is necessary to know how to transform data into information so that the entrepreneur can make decisions with certainty, so that he knows that, within the scenario in which he finds himself, the decision he is about to make is the right one.
The development of a contingency plan allows to see what the deviations of the company will be and to be able to act on them in time. Because, who tells us that from a crisis one cannot come out stronger?
That is why, now more than ever, the SME needs a contingency plan.
Pedro Vidal-Aragón de Olives
Founding Partner of Quercus Ventures