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Updated: November 19th, 2020
Every business deals with occasional crises. You could experience a data breach, lose your top salesperson to a competitor, or suffer a severe cash flow shortage. “A business crisis is anything that is a major disruption to your workflow or daily operations,” said Ivy Slater, an entrepreneur and the CEO of Slater Success.
Other examples of business crises include:
All of these situations can set your business back if you’re not prepared. Depending on the crisis, you risk stalling operations, losing clients or customers, ruining your credibility, losing profits, or even endangering employees. Without the resources to deal with an emergency, it can be difficult to recover.
Fortunately, there are proven ways to get through it. Here are six steps for overcoming a business crisis and getting your operations back on track.
In the midst of a business crisis, you may want to jump into action mode right away, but reacting on impulse isn’t always smart. “When the fight or flight mechanism is active in the brain, we act instinctively, not logically,” said Brian Cairns, the CEO of ProStrategix Consulting. “Some instincts are good. Some are not.”
It’s normal to be afraid during a crisis, Slater said, but you need to remember your role as a leader. “If you go into an emotional response,” she said, “you’re creating a panic,” which can then affect your employees.
In the immediate aftermath of a crisis, it’s important not to let your feelings guide your decisions. If you’re angry, upset, or stressed, take some time to yourself to breathe and process the situation. Once you feel calm, you can assess what went wrong and consider your options.
When you’re dealing with a business disaster, it’s helpful to consult people who have more knowledge and experience than you. “In a crisis mode, we want to be able to see peripherally,” Slater said. “Tapping into some sort of support team gives us the ability to think clearly and assess a situation from all perspectives.”
Before you develop a response plan, make a list of people you need to check in with first. If you’re in a financial bind, for example, you may want to call your accountant. If you’re dealing with a legal or PR crisis, you should contact your attorney or publicist. Other key support systems could include your sales team, your mentor, or peers or colleagues who’ve navigated a similar situation, Slater said.
Getting information on every angle of the disaster can help you develop a more effective plan for business crisis management that involves moving forward with minimal fallout.
Most business crises affect your finances in some way, either directly or indirectly. Delayed payments from vendors, for example, directly affect your cash flow, while a malfunctioning point of sale system can mess with your sales revenue.
No matter what type of crisis you’re dealing with, it’s a good idea to review your finances in the wake of a problem. As soon as you can, meet with your accountant to discuss your cash flow, savings, assets, debts, and upcoming expenses.
Take this business crisis example: If the engine on your company’s delivery truck dies, you need to decide whether to repair it, buy another truck, or rent a replacement vehicle — and looking at your finances will give you a better idea of what’s feasible. You might be able to liquidate one of your assets to cover the cost of a new truck, for example, charge the repair on your business credit card, or pull money from a reserve fund.
Even if you don’t see an obvious solution to the problem, examining your finances can give you a better understanding of how to improve your money management to prevent future crises.
Start by assessing where your business has the most damage. Are your sales suffering because you ran out of inventory unexpectedly? Is your reputation on the line after you botched a big order to a client? Or, maybe daily operations are at risk due to a flood in your office.
Aim to create an action plan for the first 24 hours after the crisis, the day after, and the following week, Cairns suggested. Next, gather a team to help deal with the crisis and delegate tasks to each person. “Use this plan as a living document,” Cairns said, where you check the results, adjust, and execute again.
Addressing a problem isn’t enough, though, when it comes to business crisis management. If you want to prevent a repeat disaster, it’s crucial to confront the root of the issue. Chad Hill, the CMO of Hill & Ponton, recommended forming clean-up, prevention, and recuperation crews.
“This means finding and fixing issues that have resulted from the catastrophe,” he said, “and moving towards the goal of pre-catastrophe.” For example, the recuperation crew works on resolving the issue or regaining what the company lost, whether it was a key client or portion of profits. Then, the prevention team tries to identify the problem and figure out how to prevent it from happening again, Hill said, while the clean-up team deals with the fallout from the crisis.
Creating teams with different tasks ensures you’re covering all your bases in the midst of a crisis.
While some business crises are self-contained, others ripple outward, affecting employees and customers. When that’s the case, you may need to tell people what’s going on. However, informing employees and customers of a crisis you don’t have a solution to can cause panic. It’s better to wait until you have a plan in place to communicate.
Once you have a plan, talk to the employees whose jobs are directly affected by the crisis. Depending on the situation, this could be senior managers, the sales team, or employees in customer service. Beyond describing the problem, you also need to explain the plan and what each person’s responsibilities are for executing it.
Once your team is on the same page, it’s time to talk to the people who were most impacted by the crisis, said Cairns. For example, if the business crisis was that your website accidentally charged certain customers twice for their orders, make sure you email or call your customers to apologize and explain the situation. “When communicating about the issue, be honest, frame the crisis in context, be clear on how you plan to manage it, and be succinct,” Cairns said.
Be prepared to compensate your customers for their inconvenience, whether by offering a refund or a discount on a future order. And remember: transparency helps foster trust with customers and clients, but only if you follow through on the promises you make.
Dealing with a business crisis is never fun, but it can be a valuable learning experience. Before you move on from a disaster, consider what you learned. “You have to ask yourself why the problem happened and how you can prevent it from happening again,” Slater said.
Maybe you had a cash flow crunch because your payment timelines for vendors were too lenient. Or, maybe the company’s customer relationship management software crashed because you were using an outdated version.
Sometimes, though, you’ll face crises you have no control over, like natural disasters. In those cases, you still need to put systems in place to minimize future damage. Think: moving company files to the cloud, creating an emergency response plan, and training employees on disaster best practices.
In any case, reflecting on a business crisis and how it was managed can help you make a contingency plan for the future. “A plan made when cool heads reign is likely to be better than one made in crisis mode,” Cairns said. Make sure your plan includes a handful of different solutions and steps you can take in the event of a crisis, as well as information on each person’s role and responsibilities before, during, and after an emergency.
When you’re a business owner, managing crises is inevitable. But figuring out how to keep operations running in the wake of chaos can be tricky.
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Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.