The Resilience Roadmap – Six steps to building business strength

As reported in The Times, there has been a 50.2% increase in critical financial stress cases across the UK. The report also revealed that, in Q4 of 2024, almost 47,000 businesses admitted to experiencing financial hardship, with the construction, leisure and retail industries taking the biggest hits. 

When businesses face uncertain times, it's paramount to build resilience to help navigate challenges, ensure long-term success and sustain business longevity. Nevil Durrant, Group CFO at The CFO Centre, shares his six top tips for businesses looking to shift the dial in 2025. 

1. Strengthen cash flow management
Effective cash flow management is the lifeblood of business resilience. Businesses fail when they run out of cash, irrespective of what their profit and loss account says. Patterns and potential shortfalls in cash can be identified by conducting a thorough analysis of your cash flows and, with regular forecasts produced to anticipate future cash positions you can make informed decisions. 

Many businesses experience lumpy cash flows due to large capital expenditures and/or significant annual costs coming in one go, such as insurances or licences, meaning they should maintain both short-term (4-5 week) cash flow forecasts and long-term (12-month rolling) forecasts to anticipate the impact of major expenses. 

Plan ahead for large outlays to prevent liquidity crises. Various financing strategies, such as extending overdraft facilities, debt factoring, or negotiating payment terms with suppliers, can provide additional flexibility, so conduct some research to find your best course of action.  

With the April 2025 date looming with the rise in National Insurance Contribution rates, getting cash flow in order is key to staying ahead. Businesses should review their forecasts, especially in light of growth against borrowing, to ensure any changes do not impact any borrowing covenants. 

2. Diversify revenue streams
Relying on a single product, service, or market can expose a business to significant risk, that's why it's advantageous to explore opportunities for diversifying offerings or entering new markets. Businesses should conduct market research to identify unmet customer needs or emerging trends that align with your capabilities, then develop new products or services that cater to these demands, or consider strategic partnerships to expand your market reach. Consider what demand you are seeing in the market that is adjacent to your offering, and whether you can extend or augment your offering to capture that demand. Perhaps consider entering into a joint venture and going into partnership with another established firm as a lower risk way to test a new market or offering.

Diversification can mitigate the impact of downturns in any one service or sector and provide alternative revenue sources during challenging times. 

3. Enhance operational efficiency
A pre-emptive root and branch review of your business can highlight inefficiencies or bottlenecks to productivity. Taking action early can yield dividends in a downturn, and doesn't necessarily mean just cutting costs. With a small amount of investment, technology solutions can help to automate routine tasks, resulting in reduced labour costs and minimising errors, whilst AI tools can enhance business operations and insights. Employees offer a great feedback loop too, as they often have valuable insights into day-to-day operations and where improvements can be made. 

Do also bring a focused eye to your cost base. It is not unusual for businesses to take on activities, and the subsequent costs, to then not critically review them further down the line, as if those costs are now baked into what they do for ever more. Consider what activities (and associated costs) are delivering returns, what are not, and whether you can redirect resources to the higher return activities. If you have invested resources into certain ventures and they are not delivering results, it is often better to fail fast and learn the lessons, rather than to continue to pour in resources in the hope things might pick up.

4. Develop robust scenario planning
Scenario planning offers a great opportunity to assess different economic conditions, regulatory changes, or market disruptions that could impact your business. Once potential issues have been identified, develop contingency plans for each scenario, outlining specific actions to take in response to these events. 

Whether it's a global economic downturn, new export tariffs or another pandemic, businesses should be prepared to deal with the outcome – regardless of whether the company grows or takes a hit. Scenario planning can help to limit the damage or capitalise on the upturn. For example, ask yourself, what would my business need to do to survive if it took a 5%, 10% or 15% hit to its revenue run rate overnight? When we ask hard questions like these, it can change the context of how we look at the business and free us up to be more objective about its relative strengths and weaknesses.

A robust SWOT analysis is still a valuable tool in any company's armoury, and this should include benchmarking where competitors have an advantage, and where you do. Understanding how competitors will seek to operate in the market, will inform your strategy.

5. Strengthen customer relationships
Loyal customers are a stabilising force during turbulent times, so it's crucial to invest in understanding their evolving needs and preferences through regular engagement and feedback mechanisms. Customer satisfaction can be enhanced by offering personalised solutions, whilst loyalty can be nurtured by offering specific programmes that provide additional value.  

Don't be afraid to speak to your customers and learn what makes them tick. This information is invaluable and puts you in a much better position to deal with any future downturn. It is easier to keep an existing client than it is to find and win a new one – understanding your clients and exceeding their expectations builds resilience into your business.

6. Maintain a healthy balance sheet
A strong balance sheet provides the financial flexibility needed to weather difficult economic conditions. Leaders can focus on reducing high-interest debt and managing liabilities prudently, including building an emergency fund to cover unexpected expenses or revenue shortfalls. Maintaining financial discipline ensures your business can seize opportunities and navigate challenges without compromising stability in the long run. 

In uncertain times, businesses are constantly faced with the prospect of impending disaster. However, by being prepared, leaders can navigate their way through difficult waters and take advantage of the opportunities that stormy times can often bring. With diversity, agility and preparedness being the key pillars of business resilience and sustainable growth, they should be an ongoing exercise for businesses, not just during uncertain times. 

The CFO Centre currently supports more than 800 businesses in the UK & Ireland through the provision of senior, part-time CFO. For further information visit https://www.cfocentre.com/gb/.