In addition to managing your finances on a day-to-day basis, consider implementing some of these steps to ensure you're financially prepared in the event of a crisis.
Step 1. Identify financial obligations and expenses that must be paid
You shouldn't assume that because your area has been hit by disaster, your suppliers, vendors and creditors are aware of the situation and are automatically granting extensions. Items such as mortgage, lease, or rental payments may still need to be made even after a disaster strikes your business.
Have a solid understanding of what financial obligations and expenses will need to be paid, even during a crisis event. This will help you to plan for your emergency fund and credit requirements.
Step 2. Build up an emergency cash reserve fund
Should a crisis event force your business to shut or slow down, having an emergency cash reserve fund that you can draw on quickly can be a critical safety net in keeping your business afloat.
Step 3. How much will I need?
While emergency fund goals vary depending on a business' income and expenses, it's recommended that a business put aside enough funds to cover at least four to seven months' worth of expenses.
Step 4. Regular contributions
Once your emergency fund is established, it's important to make regular contributions to the account. Due to the unpredictability of crisis events it is important that this fund remains active and intact to ensure adequate funds are available.
To prevent yourself from using this fund for other expenses, keep your account completely separate from your regular business accounts.
Step 5. Personal savings
If your business needs an injection of cash beyond the emergency fund, some of this may come from your personal funds. Take the time to check how easy it would be to access your savings and consider moving some funds to an interest earning easy access account.
Step 6. Have credit available
If you don't have enough cash in your emergency fund, be sure to have a line of credit or a credit card available. You will need to think whether to renegotiate an overdraft or should consider a loan. Talk to your bank manager or financial advisor about their offers so you know what your options might be.
Step 7. Maintain a strong relationship with your bank or financial institution
Maintaining a strong relationship with your bank or financial institution will ensure that they better understand your business and will be more likely to assist when discussing restructuring of business loans or delaying loan repayments.
Step 8. Create a policy regarding payroll during and after a disaster
Payroll is often overlooked in business continuity planning. You should not assume that your employees will continue to work without pay during or after a disaster. Be sure your employees are aware of your payroll continuity plans ahead of time in order for them to plan for their personal financial obligations.
Loch Sport Marina Hotel
The Loch Sport Marina Hotel experienced a downturn after the 2006-07 bushfires in Gippsland, followed by floods in June 2007 and a blue-green algae outbreak in the summer of 2007 to 2008.
"While business is sound and going through good times, put in place financial arrangements to help you in the case of an emergency," says Alan Hall, Loch Sport Marina Hotel. "Don't wait until the emergency has struck and then go begging to the bank for money. Set up overdrafts, etc. when your business is in a positive growth cycle. This way you'll get a much more satisfactory arrangement."
DULC Halls Gap
Pru Farrer talks about her experience during the 2006 bushfires and what contingency plans she has in place to help protect business.