How to Prepare a Business for an Interruption in Income

troubled businessman

The pandemic has proven that no one can really foresee when a disaster is about to strike. Since COVID-19 started spreading across the United States in 2020, many businesses had to close temporarily due to nationwide and local lockdowns.

For some businesses, however, this meant losing profit for a significant amount of town. Those that were able to sell online manage to continue operations, albeit at a limited capacity. Others that rely on in-store services had no other choice but wait for the outbreaks to simmer down enough to allow an increased of mobility again.

But the pandemic lockdowns and other restriction served as a death knell for many businesses. An unknown number closed their doors in 2020, never to reopened again.

The COVID-19 pandemic will not be the last disaster to strike the U.S. Businesses have to be prepared for other events that can interrupt operations and lead to loss of income. For this reason, it is important to have a plan in place for worst-case scenarios.

Keep an Emergency Fund

An emergency fund is a pool of money that can be used to cover certain expenses if they become too much to handle. When businesses are affected by a disaster, it’s easy for their cash flow to get interrupted. Even though there are other options such as liquidating some assets or taking out loans, this can sometimes take longer than expected. This means that for these companies, there will be longer periods of time in which they are unable to pay for certain expenses.

For many companies, salaries are the biggest expense. When income is interrupted, it becomes very difficult to continue paying staff if there’s no emergency fund set up beforehand. This can lead to layoffs and having a smaller team. It can also cause a decrease in motivation among the remaining staff.

Having an emergency fund ensures that you will be able to pay your staff even if there’s a significant interruption in income. This can be used to cover salaries until the company gets back on its feet, or until it finds a way to generate income again.

Of course, this isn’t the only expense that can be paid with an emergency fund. It can also be used for other purposes such as covering rent on long-term leases after you’ve been forced to move your business elsewhere due to limited accessibility in the area.

Have an Insurance Policy

ensuring business

Disasters and other events that can harm businesses don’t always happen on a national level. Local events such as fires, floods, or crime sprees can have just as much of an impact to your business.

There are many types of insurance policies that can protect your company against different situations. For example, you could have fire insurance if you maintain a physical store. This is also true for inventory loss and liability costs due to theft, accidents and wrongful termination of employees.

Another type of policy that you can get is called LOP or Loss Of Profit insurance. If your business has an online presence, this ensures that if your website gets shut down due to the company’s location or due to a cyber attack, you will still be able to receive compensation for lost profits.

Different insurance companies offer different coverage. It’s best to shop around for what’s right for your business.

Evaluate Cash Flow

One of the most important things that you need to do is take a look at your company’s cash flow. This will allow you to see how much capital it can weather out before going under.

Understanding your cash flow could save you a lot of time and money in case of an emergency. Once a disaster hits and you have no choice but to stop operations temporarily, you know which places to cut costs or if you have the leeway to pivot to another source of income.

If your company has been doing well and there’s still an excess amount of money left after paying salaries and other business expenses, you should prioritize paying staff before anything else. This is especially true if the company has been affected by a disaster and some of your employees have been forced to take an unpaid leave of absence.

It’s also recommended to consult with a financial advisor in situations like this. They can help you decide which things your company can sacrifice and which ones it needs to prioritize for the greater good. With their help, your company can be back on track in no time.

In this blog post, we’ve discussed some steps that you can take to prepare your company for a significant interruption in income. From having an emergency fund and insurance policy in place before anything happens to knowing how much capital is available after a disaster or other event, these are all important things to consider when it comes to protecting your business from going under.


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