Does Your Budget Plan Prepare You For Worst-Case Business Nightmares?

What would you do if your lost your biggest client? It’s devastating when the news hits but overcoming the loss of your biggest account doesn’t have to be the end of the world if you’re prepared and ready to act.  A budget plan that accommodates selected "worst-case" scenarios provides powerful insights to make critical decisions promoting a fast recovery and getting back on track to achieving your strategic goals.

Here’s what you need to know to make smart decisions and successfully weather the storm when your number one client walks.

Failing to Plan is Planning to Fail

Maintaining a clear understanding of your customer mix and profit margin for each account is an integral part of reducing exposure to risk from the loss of a major client.

Identify which clients pose the greatest threat to your stability using the following formula:

Total Risk = Likelihood of Losing Client x Magnitude of the Impact

Analyse the total risk for each of your top clients and compare figures to your global financials. If the loss of a single client would bring about catastrophic losses, work to diversify your customer portfolio immediately by either developing smaller, existing customers so they become larger ones, or seeking out new, profitable clients.

Note: Pay particular attention to accounts with contracts set to expire within the next 6 months.

Staying a Step Ahead: Formulate Winning Cost-Cutting Strategies

The moment a client leaves is not the time to work out which cuts will best mitigate your losses.

Know in advance how certain ‘conditions’ affect the business using scenario modelling. Find out what expenses will need to be cut, if and how many staff will need to be laid-off and what drop in drawings you will have to take to stay afloat.

Building early warning triggers and cash contingency availabilities into your budget plan are effective risk minimisation strategies to help keep you afloat should any of the risks come to pass.

Remember to look not at gross revenue but at customer profitability when calculating the total value any given client provides for your business. Use this data as a powerful insight into developing strategies, policies and procedures for damage control.

Your Budget Plan is the Next Best Thing to a Crystal Ball

Predicting the departure of a client is difficult but there are early warning triggers to look out for such as lower client engagement and reluctance to lock into a long-term agreement. A proactive approach and regular monitoring and review of your budget plan provides you with sufficient time and knowledge to make better decisions.

Apply appropriate customer risk strategies that prioritise loss control while also driving business.

Effective Risk Mitigation Strategies

While being prepared to make necessary cuts is a reality for every business in any industry, the most powerful approach to controlling damage from the loss of a big client is customer diversification.

Locking major customers into long-term service contracts allows you the flexibility to develop other existing customers into larger clients, land new accounts and consider lower-cost methods for servicing less valuable clientele.

Know the potential impact of losing your #1 client and utilise these insights to make better decisions and drive business success. For professional guidance with regards to your company’s risk management procedures call Taso on 0429 142 413.