Building Resiliency into Small Businesses

By Carol J. Yee, COO

Small businesses weather many challenges, but one area that is often overlooked in the day to day push to develop brand recognition, deliver excellence in their operations, and promote new business to fill the pipeline for sustainability is building resiliency.

Small businesses resilience has become more essential in recent years. In federal government contracting, for example, which had been known as a stable, reliable market for small businesses, albeit with complex barriers to entry, market uncertainty has made it more difficult for them to enter and compete. The two recent government shutdowns, including for 35 days in early 2019, the longest shutdown ever, evidence the growing difficulties for small businesses. The immediate effects of government shutdowns on small businesses can differ. Some small businesses that have employees or prime contracts that are directly affected by government shutdowns, can sustain significant damage to their business, forcing them to cut back on operations and employees, and may even lead to bankruptcy. For others with short-term work through subcontracts, they may be less affected in the near term, but the setback could eat away at resources to sustain themselves and grow over time.

Long delays in government procurements and the uncertainty of the budgets for each agency can also be especially damaging to small businesses. Some contracts that were scheduled for award prior to the end of the fiscal year on September 30, for example, still have not been awarded, and these may continue to be delayed or be cancelled. For small businesses, long delays and cancellations wreak havoc on financial budgeting, and can disrupt the ability to retain the talent they have proposed for positions, putting a serious strain on the ability of small businesses to deliver as promised.

To become better positioned to manage growing risks that small businesses increasingly face, business leaders should make it a priority to anticipate and prepare for setbacks and consciously build systems for resilience.

Diversification and Cash Reserves

Diversifying your funding streams is one way to mitigate the impact of a government shutdown and/or delay in contract awards. If you have cash flow coming in from other sources, you may be able to ride out the storm. Cash reserves must be set aside; some recommend three months of reserves, while others recommend six months. Keep your employees in mind. If they are working onsite in a government facility, the likelihood they will be furloughed from their job is high. And unlike their government counterparts, contractors’ staff usually do not receive backpay. For some staff, this could be devastating financially. Is there some work your company could offer them while they are furloughed so they can continue to be paid? Maybe there is training they could undertake now, or maybe your company has some research or development of a new product that you have been putting off that these employees could work on. Can they help put together some marketing materials or communications products on the work they are doing? The company will need to pay for these extra tasks from their own funds, but this way your talent won’t leave for another job and you will strengthen loyalty with your employees if you make them a priority in these tough periods.

Manmade and natural disasters can also hit out of nowhere creating unexpected losses and new challenges. An example occurred in Arlington, Virginia, in July 2019 when heavy rains and a flash flood hit suddenly one morning, drenching neighborhoods and damaging businesses, homes, and recreational areas. After an initial estimate of $3.5 million in damages, the final tally grew to $5.8 million – a devastating and unexpected loss for local businesses. While disasters may not be preventable or cannot be anticipated, such as the hundred year floods that are occurring more frequently, there are some things small businesses can do to mitigate risks and aid recovery.

Steps for Disasters – Role of Systems

First of all, there may be some insurances you can purchase, such as flood or earthquake insurance, that you don’t have that could help you physically recover. Company information and systems are precious assets. Many small businesses already keep their electronic files in the cloud and issue laptop computers to their employees, which strengthens the ability to recover data. Both approaches help businesses return to operations more quickly than maintaining internal servers and desktops. Using management systems and documenting a business’ policies and procedures will also help with recovery. If systems are automated and the procedures are well documented, it is easier for staff to carry on, even if key staff are absent because they can’t get to work or if they don’t have electricity. Documented procedures and cross training develop redundancies, making the small business more resilient. Keeping electronic files in the cloud facilitates recovery that file drawers filled with hard copy files cannot keep up with, especially if they are damaged or lost.

While we can’t predict what will happen, businesses, especially small businesses, can and must take actions to mitigate against losses and downtime. It is critical for business owners (and directors of non-profit organizations) to build a resilience mindset that plans for potential scenarios, so small businesses have a better chance to recover from disasters and thrive in their local communities.