The past 18 months have been difficult for many businesses in light of a series of closures, lockdowns, and restrictions that have hindered operations for many. With vaccinations up and infection rates down, all businesses – both for-profit and non-profit – are looking to move past reacting to the pandemic and get back to “normal conditions”.
Getting back to normal conditions is going to be a big challenge. The old “normal” will not be the new “normal” and it will take some time to establish what this ‘new normal’ will look like. For example, how long will we still need to wear masks and structure public spaces to avoid crowding? Will some of these measures become part of our daily life, or will we move past them at some point? What if the unthinkable happens and another virus or strain forces us to move back once again? Every organization needs to examine what it has learned over the past year and a half, and how it can be better prepared for the next possible challenge. Adaptability and resilience are key.
Planning for the Unknown
As the old expression goes, “fool me once, shame on you; fool me twice, shame on me”. Resilient corporations and organizations prevent, plan, and invest for disruption so that they can adapt to and survive tough challenges, and rebound from them rapidly.
Consider Worst-Case Scenarios
Risk management skills are now even more important. Your business or organization needs to identify potential worst-case scenarios and how they might affect all parts of your organization. For example, it can be worthwhile to regularly examine how prepared each aspect of the business would be in the event of a disruption in circumstance by asking tough questions, such as:
- How strong is your supply chain?
- Do you have a backup plan if your regular suppliers are unable to provide your raw materials?
- Do you have more than one supplier?
- How do you make your business very agile in being able to adapt to situations?
Of course, it’s impossible to consider every potential scenario or to be totally protected. For example, few people could have predicted the pandemic, but it’s possible to imagine that your regular supply chain could face interruptions. Part of risk assessment involves making probability assessments for these areas of risk in order to commit resources to the most significant risks on a priority basis.
Strategic Budgeting for Resilience
Resilient organizations have budgeting processes that emphasize both the short-term and the long-term. The short-term budget will emphasize increasing net income, while long-term budgeting will consider where you want your organization to be in five, ten, or twenty years, and how best to get there. How much of your long-term strategy deals with being resilient? Many companies have a budget preparation process that attempts to forecast not only the upcoming year and the three to five years beyond that as well.
Long-term budgeting presents a great opportunity to build in plans to become more resilient. As part of the process, you should be thinking about possible future risks and how to prepare for them. Long-term capital and operating expenditures should be evaluated to see if the benefits outweigh the cost. This long-term thinking will help your company to become more dynamic in its thinking process. Business owners should aim to become more proactive than reactive by planning expenditures that will make them more resilient, managing risks before they occur. This provides an organization with both financial and operational resilience.
In addition to financial and operational resilience, reputational resilience is also an important consideration. Will banks still be willing to lend you money in tough economic times if you have not developed reputational resilience? Risk to reputation is a risk to value, and organizations need to understand both. If you give the impression that your business can not weather crisis situations well, you run the risk of losing clients and/or harming your relationship with investors or lenders.
On the other hand, if you have been able to come through the current pandemic while managing to maintain your customers’/clients’ needs, your reputational resilience grows dramatically. Some businesses have reacted to the current pandemic as an opportunity to enhance their reputational resilience. Of course, the nature of a business can also have a significant impact on its ability to withstand this type of challenge, or even lean into it. Being the owner of a restaurant in 2020 was much more challenging than a business that could easily pivot to an online model without a major impact on operations.
Managing reputational risk does not fit neatly into a single function in an organization. t needs clear accountability and broad engagement. Many owner-managed businesses have adapted to increasing reputational resilience. They have done this by establishing a strong sense of organizational purpose for their business, as well as employee engagement by doing whatever they can to take care of employees during hard times. When a team is willing and able to rise to the challenge, they can often accomplish what is necessary to overcome temporary setbacks.
CONTACT EDELKOORT SMETHURST SCHEIN CPAS LLP IN BURLINGTON FOR ADVICE
Building organizational resilience requires examining each aspect of a business, assessing potential risks, and taking proactive steps to insulate the business from harm. This is not a small undertaking, but advice from an experienced financial professional can help. Please contact the Chartered Professional Accountants at Edelkoort Smethurst Schein CPAs LLP by calling 905-517-2297 or by contacting us online. Their consulting expertise will help you make the best decision for you and your business.