Sequestration, a long, funny sounding word with serious implications. With the deadline on March 1st and no resolution in site, there are predictions of dire consequences. Some small business contractors could be affected by reduced business with government agencies.
This is a reminder that challenges to our small businesses can come from anywhere and some may be out of our control. But how would a small business minimize the impact of outside forces?
Diversification - it's always a good idea to have a diverse book of business. Providing different kinds of goods, or services in more than one market segment can help prevent catastrophic changes. Small businesses that only have government contracts may be in for a rough time.
Cash on hand - it's good to have a reserve. Yes, sometimes it is very difficult to set up a reserve for your small business but you can use a budget to help build a reserve. Want to know how long you can operate on cash reserve only? Take the total cash you have and divide by your average total monthly cash outflow and multiply the result by 22 for the average number of workdays in the month. This will let you know how many days worth of reserve you have.
ex. (Total cash on hand/Average monthly cash outflow) x 22=days worth of reserve
Keep your customers informed - if the work you perform for your clients includes working with government or federal agencies let your clients know that services may take a little longer. Keeping your clients informed or resetting timelines will help with customer experience.
Emergency reduction plan - do you have an emergency plan for your small business? Would you know which expenses are essential to your business and which you can cut or delay? Having a plan for surviving reduced work or business can help if a situation comes up. It would be no different than an exit plan in the event of a fire. You hope there will never be a fire, but you know what you need to do and where to go if there is one.
Sometimes you will never know when a threat to your small business can come or where it can come from. But making sure your work is diversified, having a reserve and having a plan for such situations can help you and your small business survive challenging times.