Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.
10 min. read
Updated January 4, 2024
No matter how thoroughly you plan, every business goes through a crisis.
Whether it’s something widespread, like COVID-19, consistently falling sales, or a blitz of negative customer feedback—you must be prepared to navigate (and hopefully grow) despite these issues.
While you shouldn’t try to prepare for every situation, you can still set your business up to successfully navigate a financial crisis. This guide will show you how.
Before you start planning, you must understand your situation.
The point of this initial step is for you to take an honest look at your business and identify the real issue(s). It could be an external factor completely out of your control, something internal impacting profitability, or a combination of the two.
First, review your most recent financial statements for a high-level overview of your financial position. You can start with the Profit and Loss, Balance Sheet, and Cash Flow Statements and go further if necessary.
Treat this like a traditional monthly or quarterly review.
Look for any obvious red flags and compare against the previous year’s performance to account for any trends or seasonality. You should also compare the actual results to your forecasts to understand how far off you are from expectations.
Use this surface-level overview to determine where you’ll dig deeper. Here are a few questions to help drive your exploration:
You must also understand what external factors impact consumer spending and your business expenses.
During the COVID-19 pandemic, physical storefronts were forced to shut down. For some businesses, they could not serve customers and generate sales. It also meant they weren’t incurring the same operational expenses. Additionally, the initial reaction by consumers was to tighten their wallets and limit or eliminate spending.
So, if you ran a strictly brick-and-mortar business, you likely saw sales dry up and some expenses (like labor and utilities) decrease. If you ran an online service that wasn’t considered essential, you likely experienced a drop in sales but maintained the same level of expenses.
Tip: Get out and actually talk to your customers. These conversations will provide first-hand feedback and possibly even ideas for immediate action you can take.
When analyzing external factors, identify what is impacting you and your customers now. Then consider:
By exploring these questions and understanding your current financial position, you’re setting yourself up for step two—revisiting your financial forecasts.
Dig Deeper: How to conduct a market analysis in a crisis
Not everyone needs to be involved with crisis management. You must select people specializing in the current issue or who can provide a diverse perspective.
No matter who you choose, the important thing is to be transparent. You must get everyone involved up to speed and ensure they have the full picture. Holding back information could lead to unproductive efforts, and your team could miss out on potentially valuable ideas.
Tip: Start with a larger group and then refine. You don’t want to miss out on potentially business-saving ideas from front-line workers. Once you have a solid range of feedback, reduce your response team to encourage swift action.
Lastly, make sure that you clearly define everyone’s roles and responsibilities. Each individual will likely manage a more focused extension of their current responsibilities. However, there may be an overlap between employees or a need to focus on one area of your business that could make the work unclear.
Get ahead of the confusion and ensure everyone understands their part in mitigating this crisis.
You’ve assessed the situation, adjusted your sales forecast, and have a team in place—everything necessary to create a crisis management plan. While your actions fully depend on your unique situation, these are potential options worth exploring.
The first step is identifying opportunities to eliminate expenses and strengthen cash flow. You’ll do this by reviewing and updating your cash flow and expense forecasts (see told you we’d get to these). To do this, ask questions like:
What you identify here should provide immediate actions to help keep your business up and running.
Your sales forecast adjustments focused on addressing the current fallout. Now, you need to find opportunities to improve sales. Take your updated sales forecast, create a copy, and explore additional scenarios, such as:
Additionally, you may be able to adapt or pivot your business model. If you’re primarily a brick-and-mortar business, explore shifting to online sales. If you sell a singular product or service, could you package it as an ongoing subscription?
While it may be unnecessary, you should at least explore how an injection of external funding could impact your business. Consider the following:
Perhaps most importantly, you must understand when additional funding would be needed. If you don’t need to take out a loan immediately, it may be best to wait. Additionally, if your business continues to struggle and funding is your last option to stay afloat—it may not be the best idea.
So, take the time to consider funding and how you’ll manage it. Don’t jump into taking on more debt, and don’t save it as a last resort. If you ultimately decide it’s the right option to get your business through a crisis, clearly understand how you will use it and pay it back.
At a minimum, you must address:
Just be sure to keep your overall plan and actions fairly lean. After all, you are responding to a crisis, and the last thing you want to do is delay action by dragging out the planning process.
The best time to plan for a crisis is before it occurs. Learn how to create a contingency plan that helps you safeguard your business finances.
Once a crisis disrupts your performance, current budgets and forecasts are immediately outdated. While the disparity helps you assess the situation, if you continue using them as is, you’ll be completely out of touch with reality.
You must update your forecasts based on recent trends in sales and expenses. The update is necessary to set a new baseline for your forecasts that better reflects the current situation.
Now, you must:
For this step, focus on your sales forecast—we’ll address cash and expenses shortly.
To guide your adjustments, revisit questions from your initial assessment like:
You’re attempting to predict how drastic the impact will be on sales and how long it will take to recover. Depending on the logistics of the crisis, it could be as short as a month or drag on for a year or more.
You should take the time to explore several different scenarios to better prepare for any uncertain changes. Creating multiple forecasts that cover different possibilities may be worthwhile in this case.
A cycle of negative PR led to a massive loss of short-term sales. Depending on how customers react to your follow-up statements and actions, it could be a short-lived drop or lead to long-term boycotts of your products and services. You should account for both situations.
Remember, your sales forecast doesn’t need to be overly detailed. Start with your recent performance and make your best guess. If you haven’t created a sales forecast yet, or need a refresher, check out our detailed guide for creating a working sales forecast.
Your crisis response starts by reviewing your performance and adjusting your forecasts. You need to keep doing this.
Not once a year, not every few quarters, but whenever necessary. Even if you spend an hour reviewing performance and making adjustments every week, it will be time well spent.
You are less likely to be surprised; you’ll understand if your adjustments are making an impact and immediately know when your performance starts shifting in a positive direction.
Tip: Don’t just do this review process when combating a crisis. Consider holding a monthly review meeting to stay on top of your financials, adjust your strategy, and get your team up to speed.
It can be challenging to look past a crisis when trying to survive. However, if you don’t consider what happens after a recovery, you’ll save your business and not be able to capitalize on all of that work.
Luckily, by holding those regular review sessions, you’ll know when it’s the right time to start forecasting for the future. And you don’t need to waste time creating granular forecasts either. You just want a broad idea of what to expect in the next six months, 1-year, or even 5-years.
Your numbers and expectations will likely change, but you’ll at least have a general sense of where you want to go.
Nothing we covered here should sound any different from how you usually run your business. You should regularly plan, forecast, review, and revise at least once a month.
That way, if a crisis does occur, you already understand your business well enough to take action.
Looking for more ways to better manage and grow your business? Check out these resources:
Free one-page business plan template
Keep your plan lean and actionable with our proven one-page format.
Free sales forecast template
Download a free detailed sales forecast spreadsheet with built-in formulas that make updates faster.