With any small business, launch and growth strategy are at the forefronts of our minds and we spend the majority of our time critically planning for future opportunities. The very basics of business teaching advise of the importance of SWOT analysis. We should not only look at our business strengths and opportunities but also identify our weaknesses and threats so we can effectively protect ourselves against them. Therefore, it would be lenient to forgive us for overlooking our contingency planning and business continuity strategy.
Following a recent study by small business insurer Direct Line for Business, a disruption to business trading can cause huge implications for a business ongoing operation and survival.
The aim of this article is to share with you the studied implications to a small business of a disruption of trading, the main causes of these disruptions, and what we can do to minimise the risk of it happening to us.
In the following article by Ben Lobel, he details why we should be taking business contingency seriously, referencing the findings of the recent study by Direct Line for Business.
How much does two weeks of disruption cost a small business?
The average cost of keeping a small business afloat while unable to trade for two weeks after a disruption is estimated to be £8,775.
Destroyed stock and delivery vehicles breaking down are just a couple of incidents that have been known to cause a halt in business trading.
Reduction in profit (48 per cent), reduction in revenue (42 per cent), loss of customers (39 per cent) and putting personal money into the business (32 per cent) were found to be the most common impacts of an interruption in trading on small business owners.
The study carried out unearthed huge risk implications that businesses face when it comes to trading disruption. But what are the causes and what should we look out for? Allianz Global Corporate and Specialty conducted a huge review of business insurance claims and reported the following to be the causes:
The top 10 causes of supply chain disruption loss
Increased interconnectivities and interdependencies between companies, as well as lean production processes, have contributed to both the rise in business interruption claims and new risks to business, according to The Global Claims Review 2015: business interruption in focus by Allianz report.
Top causes of business interruption loss globally, by total value (2010-2014):
With the main causes of business disruption shown to be
1. Fire and explosion
3. Machinery breakdown
4. Faulty design/material/manufacturing
6. Cast loss (entertainment)
9. Human error/operating error
10. Power interruption
So what can we do about it? With the report detailing that over 88% of business insurance claims can be contributed to technical or human factors, the positive that we can take from it is that we can have an impact in reducing our risk. The following article addresses how we can act now:
MINIMISE THE POTENTIAL IMPACT OF CRISES
Once you’ve identified the key risks your business faces, you need to take steps to protect your business functions against them.
Good electrical and gas safety could help protect premises against fire. Installing fire and burglar alarms also makes sense.
Think what you would do in an emergency if your premises couldn’t be used. For example, you might suggest an arrangement with another local business to share premises temporarily if a crisis affected either of you.
If you use vital pieces of equipment, you may want to cover them with maintenance plans guaranteeing a fast emergency call-out.
IT and communications
Installing anti-virus software, backing up data and ensuring the right maintenance agreements are in place can all help protect your IT systems. You might also consider paying an IT company to regularly back up your data offsite on a secure server.
Printing out copies of your customer database can be a good way of ensuring you can still contact customers if your IT system fails.
Try to ensure you’re not dependent on a few staff for key skills by getting them to train other people.
Consider whether you could get temporary cover from a recruitment agency if illness left you without several key members of staff. And take health and safety seriously to reduce the risk of staff injuries.
Insurance forms a central part of an effective risk-management strategy.
To help minimise the risk and impact of a disruption, contingency planning is essential.
If you don’t know where to start with one, Ready Scotland have prepared a “Keep Trading” business record document to help form the foundation of a strategy. They describe it as:
One of a number of documents to help owners and managers in small and medium sized businesses who want to think about how to protect their businesses from disruptions, small or large, natural or man-made. They can be seen as a practical introduction to managing business continuity, or how to ‘keep trading’ when trouble strikes.
Being aware of the threats posed to our businesses allows us to better prepare for them.
If you would like further advice on business contingency planning, continuity insurance or help through short term cash flow problems, a Part Time FD is the perfect resource. Benefit from extensive financial management expertise and business operational experience, as and when you need it.
The post Learn how to protect your business from the £8,775 cost of trading disruption. appeared first on Assured FD Services.