Stress Testing Your Business: Nature and the Economy

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Jan

We have seen first-hand how natural disasters can negatively impact retail businesses.  The 2011 Christchurch earthquake destroyed several buildings in the city’s CBD.  The November 2016 Kaikoura earthquakes impacted several retail businesses in the North and South Islands. 

In a matter of minutes, many businesses lost use of their premises and many retailers lost a significant amount of stock.  Some retail businesses in Christchurch were unable to operate for months after the earthquakes while others never recovered.  Some of those affected by the Kaikoura earthquakes are facing the same issues.  While having a disaster recovery plan in place before you need it won’t prevent disasters from occurring, it could save your business by providing you with a well thought out plan that will help you to move forward.

It’s also important to properly insure your company and to review your insurance cover regularly to ensure your business is adequately protected.  If you have business interruption insurance, it can help protect your business against loss of income suffered because of an unexpected setback.  Key person insurance can provide monetary compensation/revenue replacement in the event that something happens to someone pivotal to your business’ ongoing success.  There are also various insurance products available that cover stock, machinery, and plant.  An insurance broker should be able to advise you on what insurance you should be carrying.

Changes in the economy can also wreak havoc on a previously stable business.  The Global Financial Crisis caused a downturn in many retail markets, including New Zealand.  Similarly, changes to legislation can see a booming retail business become unprofitable overnight, as happened to several retail businesses when the government banned previously legal party pills. 

If you buy products or services from overseas, it is important to monitor foreign exchange rates.  You can lock in foreign exchange rates (just like a fixed mortgage interest rate) to protect your business against exchange rate fluctuations.  If the exchange rate drops after you lock in your rate, you could end up paying a little more (to cover the cost of the hedge) but, if there is any increase in the exchange rate, you know you will still be able to afford to pay your suppliers.

Running a business can be unpredictable.  If your business has suffered an unplanned event or you’re looking to set up recovery plans, talking to a business risk or business strategy advisor could help guide you through these stressful periods.

Contact us to see how we can help.

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Read 2102 times Last modified on Wednesday, 08 March 2017 21:24
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