Caution – Crisis Ahead – The Top 3 Ways to Prevent Financial Crisis in Business

Don’t you wish your business had street signs that warned of oncoming dangers? Warning: Cash flow speed bump ahead. Check insurance soon caution light. Computer virus crossing. Unfortunately in business, the warning signs are not always as clear as those we might see on the highway. Many times it’s not until you are in the midst of a crisis that you realize it could have been prevented if only you would have been prepared. There are three “P’s” of prevention that you should follow:


Incorporate appropriate protection for your tangible assets and business continuation, as well as your critical data. In the event of a tornado destroying your building, how long can your business survive? Can you operate without your computer system data? How long will your staff stick around without funds to cover their payroll? Although each business has its unique requirements, two areas of protection that should be the foundation of any business are:

1. Business insurance coverage/ The bricks and mortar are covered, but what about everything else? What about your office furniture or your computers? Can you afford to start your business from scratch if you have to? According to insurance agent Donna Wren, “Business property insurance is designed to meet your individual needs, including buildings, business property, equipment and business continuation coverage. It’s designed to protect your property, including equipment and tools that are crucial to your businesses day-to-day functions. It also helps by providing the funds to replace everything you need to continue business operations.”

2. Data backup and disaster recovery system/ According to Ed Van Buskirk, president of We are IT in Kansas City, “20 percent of small to mid-size businesses will suffer a major disaster causing loss of critical data. Furthermore, according to a national study by the National Archives and Records Administration, 93 percent of companies that lost their data for 10 days or more filed bankruptcy within one year of the disaster, and 50 percent filed for bankruptcy immediately.”A backup and recovery plan is crucial to your company’s survival.


Consistently run through “what if” scenarios within your company. What if your company lost its biggest customer? What if your main supplier stopped making your key products? How would that affect your cash flow, personnel, overhead, etc.? Preparing in the event of a business crisis is similar to a good basketball team preparing for game situations during practice. The coach meticulously runs the players through a variety of challenging situations in the controlled environment of practice, so when in real situations the players are not caught off guard. Another bonus for using the practice model for your business is that you will often discover more strategic ways of running your business, ultimately minimizing the risk of crisis.


Minimize debt and maintain cash reserves or an open line of credit equal to three months operating expenses. This means you need to leave some profits in the company. Unfortunately for many companies, one more crisis will put them out of business because they have failed to prepare for a rainy day. Even with a healthy organization, a crisis an be devastating, as described by Dr. Patricia Mooney-Smith, of Heartland Women’s Health Care, “We had just paid $ 500,000 to a malpractice insurance carrier that went out of business. We had to eat these costs, and we didn’t even know if we would be able to stay in business.” Fortunately for Dr. Mooney-Smith, her practice had begun preparing for a crisis years before the big one actually hit. While the crisis proved to be extremely challenging, the practice survived and continues to apply crisis prevention management. Steps to consider in preparing for a potential financial crisis:

1. Minimize outstanding debt

2. Develop a spending plan (budget)

3. Develop and implement a plan for building a cash reserve

4. Allow room for spending flexibility when crisis hits

Even though the highway department may not be posting warning signs of business crises, implementing appropriate protections, practicing “what if” scenarios, and maintaining profit strategies can help prevent and minimize the impact of financial crises.