Setting up your own business means accepting one of the inescapable truths of the trade – crisis. A crisis is inevitable and can hit at any time from any direction. From natural calamities such as earthquakes or floods to geopolitical tensions like war or tariff hikes, to cyber-attacks and even internal threats like employee fraud, every business is vulnerable. But small businesses are particularly susceptible to financial crisis, such as weak sales, inconsistent cash flow, heavy debt, or insufficient profits to stay afloat.

Knowing how to deal with such challenges and fortify oneself against the next potential crisis requires the skill and experience of one who can gauge which way the wind is blowing and implement measures that can halt further damage to your small business.

How to Deal with a Financial Crisis

If a financial crisis occurs, priorities change, and the business automatically goes into sustainability mode. Doing nothing in a crisis could prove dangerous, as the business is struggling to stay afloat. When the business is drowning in a high tide, the first step is to give it a life jacket to help it stay afloat.

At such a point, a fractional chief financial officer (CFO) can help you take the right steps to mitigate risk, reduce cost, preserve cash, and maintain liquidity. Let’s see how.

1. Review Revenue Streams: When you are already in a financial crisis, it is important to stay afloat, for which you need your cash source to be smooth. A fractional CFO will review your multiple revenue streams to find the leak. If some revenue sources are not generating enough sales, it may be time to focus on those that are, as finances are tight. And if the problem is with the main revenue source, it is time to do something new. Connecting with the marketing and sales team or reallocating long-term growth funds to activities that can generate immediate returns.

2. Streamline Operating Expenses: There are only two ways to improve profits: increase sales and reduce costs. If the financial crisis limits your potential to generate sales, you could focus on reducing costs. Cutting costs aggressively could lead to not spending in the right place and harm your revenue. A fractional CFO will help streamline operating expenses by reducing non-essential expenses and channelling that money to essential expenses.

3. Negotiate Better Terms with Suppliers and Debtors: With your financial resources on a tight string, saving every dollar becomes a necessity. One way to do so is to get in touch with your current suppliers and vendors to see if they are open to renegotiating prices, considering your predicament. If your current suppliers refuse to negotiate or are already charging quite high, maybe it’s time to look for local suppliers whose rates are more favourable to your budget.

4. Look for Alternate Funding Sources: A financial crisis calls for the need for more cash as your funds are drying up. To keep your business afloat, you have to keep the life jacket inflated. Having an emergency fund is vital in a crisis. A fractional CFO may look for alternative sources of funding, such as personal savings, bank loans, or investors. They will carefully read the terms, calculate the cost of capital, verify your financial records to determine whether the business can bear that cost, and identify the right funding options. You don’t want to create long-term cash flow problems by signing unreasonable terms just to get money now.

5. Revisit Current Business Strategies: Business is all about reviewing, revising, and reinventing. If the original business strategies that helped you find a place in the industry earlier aren’t producing the same results anymore, you need some introspection, something a CFO can do by analyzing your financial statements and capital structure. They can identify profitable products, reallocate resources to productive tasks, set new budgets, and discontinue non-performing projects and products. Strategies can also be tweaked around the capital structure, such as converting debt to equity to increase capital flexibility.

6. Revisit Operations and Investment Strategies: A CFO with a trained eye can spot a leak in your financial resources, often hidden in unused software subscriptions, over-ordered stationery, expensive equipment lying unused, and other not-so-obvious things. A CFO eliminates such superfluous spending and instead channels those funds to resolve the current crisis. They also revisit your business’s investments to check if they really are bringing in returns. If not, the CFO can provide valuable insights and suggestions on which instruments to invest in to boost your revenue and insulate against future crises.

Being Prepared for a Crisis Before it Strikes

While a CFO can certainly help you get your business out of a sticky situation, being prepared for one in the first place is always the best bet. Instead of waiting for a crisis to hit, you can consider hiring a fractional CFO to chalk out a well-thought-out crisis management plan to withstand any potential threats, internal or external. A fractional CFO can help you:

  1. Identify Potential Crises: A CFO can list possible threat scenarios, such as cyberattacks, supply chain disruptions, and natural disasters, and their financial impact on business operations.
  2. Create a Crisis Management Team: The CFO can engage employees from different departments to create an internal contingency team trained in crisis management in case of a threat. They can also recommend external specialists, lawyers, and consultants who can help you during a crisis, if the need arises.
  3. Develop Response Strategies: The internal contingency team has to be trained to deal with the different possible crisis scenarios. For this, the CFO can create detailed response sheets and workflows for each crisis, including cybersecurity measures, communication protocols, and inventory management.
  4. Prepare an Information Flow for a Crisis Situation: The most important thing to handle in a crisis is panic caused by misinformation or half information from wrong sources. The CFO can design an effective, trustworthy information channel and flow that keeps stakeholders updated on the situation.  
  5. Test and Revise Your Plan: The CFO will then test the crisis management plan for effectiveness and identify gaps. Your business and financial situations will keep changing. A CFO stays updated about industry happenings and revises the plan to tackle new possible crises.

While you can’t stop a financial crisis, a crisis management plan can help you mitigate the impact. Having an experienced CFO by your side can help you respond, resolve, and recover from a crisis with minimal damage.

Contact Black and Gill LLP in Toronto to help you manage a financial crisis

Discuss your current financial situation with a fractional CFO to explore options and take steps to withstand a financial crisis. At Black and Gill LLP, our accountants and fractional CFOs can provide services such as preparing crisis management plans, helping raise funds, and streamlining expenses. To learn more about how Black and Gill LLP can provide you with the best accounting and business consulting services, contact us online or call us at 416-477-7681.