Article written by Dani Andrews
Regardless of how long you’ve been running your business, it’s normal to experience crises over the years.
While you cannot completely eliminate the risks and threats to your business’s growth and success, the first step to risk management is recognizing the common examples of business crises, some of which you can find in a previous post entitled ‘5 Different Types of Business Crises’ Besides a personnel crisis that occurs due to illegal or unethical misconduct and a technological crisis that may arise during digital transformation, many companies and organizations also face financial crises characterized by continued revenue losses.
A financial crisis can be attributed to poor cash flow management and declining sales, but it can also be caused by unavoidable external factors like a recession. For example, a CBS News article on the US economy recalls that the Federal Reserve had to raise interest rates to curb inflation in 2023 and help stabilize economic conditions among businesses and consumers alike. Since inflation has gradually slowed down and recession fears have subsided this year, over half (55%) of business owners surveyed reveal a growing optimism about their financial prospects.
However, it still helps to prepare for managing any potential financial crisis that may arise, mainly through the following strategies.
Embrace transparency through financial reporting
One of the most straightforward ways to manage a financial crisis, such as cash flow issues, is to assess financial data. This step enables leaders to make strategic decisions and provides transparency across the account hierarchy. Softrax’s guide to account hierarchy highlights how this system lists all accounts a company uses for its financial transactions, mainly based on categories like assets, liabilities, equity, revenue, and expenses.
As such, evaluating the account hierarchy helps you understand your business’s ongoing financial health and performance, from summary figures down to detailed expenses and revenues among departments. Through accurate reporting and delegation across the chart of accounts, you can also identify any irregularities or inconsistencies that may serve as the root cause of the financial crisis.
Harness digital tools
Preparing for financial crisis management also involves digital transformation, so utilize the digital resources at your disposal for fundamental aspects like internal communication and response training. For example, a communication platform like Workshop leverages employee-facing emails to establish alignment and efficiency when delivering important messages, such as a corporate statement informing everyone about the ongoing financial crisis.
Workshop also has features like a calendar view for scheduled emails, sharing and privacy settings, and artificial intelligence-powered content recommendations to ensure critical information is promptly disseminated across departments, including but not limited to communications, human resources, sales and marketing, and operations.
Develop a communication strategy
Whether caused by a market crash or unpaid loans, a financial crisis can affect a company or organization’s reputation — prompting you to prepare an external communication strategy that can help minimize the damage to your brand’s image. In this regard, a Forbes article on crisis communication guides you through speaking with the media to address the issue in a timely manner while still maintaining public trust.
For example, it’s crucial to identify a spokesperson who can undergo media training and balance speed with honesty when delivering the company message. It also helps to prepare a unified response plan that prioritizes empathy, accountability, and the company’s core values, as well as run practice scenarios with business leaders so they can understand the crisis and respond accordingly.
Overall, preparing for financial crisis response and management involves accurate financial reporting and streamlined communication internally and externally. As you train leaders and employees on responding to the crisis and rebuilding your company’s reputation, consider working with PreparedEx for crisis management and preparedness programs, which mainly involve realistic scenarios and tabletop exercises. Explore our website to learn more about our services.
Dani Andrews is a business consultant and blogger. She dedicates her time in learning about the latest business trends and strategies. On her free time, she enjoys reading about the innovations in this space.
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