The world is more unsettled than at any point in recent memory, going back to the depths of the global financial crisis. Although the coronavirus pandemic is behind us and things feel more or less back to normal, the aftereffects of the pandemic’s profound disruptions remain with us.
Even professional prognosticators aren’t sure what comes next. The consensus among economists polled for the World Economic Forum earlier this year was that economic volatility would reign in 2023, whether or not a formal recession occurs. But experts are very much divided on how that volatility will manifest and on who, on what, and where it’ll have the greatest impact.
Across industries, proactive risk mitigation is critical amid unprecedented economic, social, and … [+]
One thing is clear: Small and midsize businesses need to prepare now for challenging times ahead. If you haven’t already, implement these five risk-mitigation strategies this year.
1. Set Aside Tax-Deferred Funds in a Custom 831(b) Plan
Like the global financial crisis before it, the coronavirus pandemic prompted governments to throw trillions of dollars at economic stimulus and business bailout programs.
Three years later, we can confidently say that these efforts helped prevent a deeper economic cataclysm and contributed to the worst inflation crisis since the early 1980s.
Many economists and policymakers now believe governments did too much to shore up consumers and private businesses. Business leaders should not expect such generosity next time it’s needed and should prepare accordingly.
There’s a long list of steps you can take to prepare your business for the next economic crisis. One important one that you may not have considered is opening and funding a custom 831(b) Plan.
The 831(b) Plan utilizes a little-known federal tax provision that allows private companies to set aside tax-deferred funds for unforeseen disruptions, like pandemics and widespread civil unrest. When customized, it can address specific risks and threats not covered by traditional insurance, preserving cash flow during temporary business interruptions and bridging periods of reduced revenue.
While there has been an increase in the usage of these plans since the pandemic, they are being underutilized due to a lack of rules and guidelines. If Congress passes legislation in the future requiring the IRS to provide more guidance surrounding the usage of these plans, there could be a bigger surge of entrepreneurs looking to use 831(b) Plans as a tool to be self-reliant when unexpected financial hardships strike.
2. Periodically Conduct Comprehensive Risk Assessments
Risks change over time, so the risk assessment your team conducted five or ten years ago probably isn’t operative today. The best practice is to conduct a thorough, whole-enterprise risk assessment at least once per year.
According to the American Society of Safety Professionals, your risk assessment should cover:
- Your best guesses as to tangible and intangible macro risks
- Business threats and opportunities
- Possible consequences of these risks and threats (and positive outcomes of those opportunities)
- Gaps and limitations in your knowledge and information about risks (known unknowns and unknown unknowns)
- Emerging risk indicators
- Biases and assumptions of those involved in the risk assessment, which can help you assess its accuracy and usefulness
3. Find and Develop New Revenue Streams
You’ve been told not to put your eggs in one basket. You also know that it’s easier to double down on what works.
The problem is that something works until it doesn’t. And in an uncertain world, seemingly reliable sources of revenue may not be as solid as they seem.
Find and develop new revenue sources now to avoid the need to scramble. This doesn’t always mean rebuilding your business from the ground up or investing in entirely new business lines. It could mean finding new customers for existing products or lines or expanding linearly into new geographic markets. But it could also mean entering entirely new industries or sub-industries that fit your overall business plan, internal expertise, and core strengths as a business.
When it comes to developing new revenue streams, there’s always some tension between practicality and durability. Find a balance that aligns with your risk tolerance and resources today while recognizing that the situation could be more urgent tomorrow.
4. Strengthen Cybersecurity Protocols
The cybersecurity landscape has been an ongoing arms race between the good and the bad guys for decades. Even as defenses become more effective, attackers grow more sophisticated.
Today, a strong cybersecurity posture demands an all-of-the-above approach:
- Strict data hygiene protocols for employee-owned devices
- Two-factor authentication for all company accounts and employee devices
- Stronger identity verification and access protocols, such as biometric authorization, for more sensitive applications
- Ongoing, comprehensive data retention and backup systems
- Clear written processes for responding to ransomware attacks and other digital disruptions
- Strict security standards for vendors and other third parties
5. Cultivate a Culture of Continuous Learning, Adaptability, and Resilience
Finally, prepare your team for what may come. Focus on three pillars of preparation: continuous learning, adaptability, and resilience.
The principle of continuous learning is similar to continuous improvement. The aim is to foster a culture where no one, from C-level to entry-level employees, is satisfied with the status quo. Everyone is committed to acquiring new skills and learning from past mistakes.
Adaptability and resilience are often dismissed as soft skills, but they’re critically important in an uncertain world. Your team will experience setbacks in the coming months and years; how they respond could make the difference between success and failure.
Prepare Your Business for What’s Next
You don’t have a crystal ball, but you can take sensible steps to fortify your business against future uncertainty. Steps you can take today include expanding your financial risk mitigation posture beyond traditional insurance, conducting a comprehensive risk analysis, shoring up your cybersecurity practices, diversifying your revenue streams, and cultivating a culture of resilience and adaptability. Better to do these things now than wait until the next crisis.
