Every business of any size in any industry will experience a crisis at some stage. Sadly, the majority don’t survive. Around one in five U.S. businesses fail within a year of opening their doors, with around half closing in five years.

Crises can come from any avenue. Whether it’s the global COVID-19 pandemic that caused 9.6 million job losses, a natural disaster, or a cyberattack, you need a plan for negotiating challenging times.

Here’s how to develop a workable crisis management plan for your small business.

What is a Crisis Management Plan for Small Businesses?

Crises come in many forms. Some of them may be self-made, and others could be unavoidable. According to the U.S. Chamber of Commerce, 595,000 businesses close their doors each year. How you manage a crisis will define whether you emerge from it.

Small business crisis management is the strategic process of identifying crises, preparing for them, and having an action plan that comes into force after a crisis is triggered. Common examples of action plans for various disasters include: 

• Natural disasters
• Cyberattacks
• Lawsuits
• Product sabotage
• Labor shortages

Benefits of Crisis Management Planning

Resiliency is a priority for business leaders today. According to PricewaterhouseCoopers (PwC), 89% of business leaders claimed resiliency was a key priority. But that doesn’t mean businesses are acting on those priorities sufficiently.

For example, only 49% of U.S. businesses have a formal crisis communication plan. It illustrates the gap between talk and action. So, why should you invest in crisis management planning?

• Minimize downtime
• Reduce financial losses
• Give your employees confidence
• Protect your reputation
• Swift resumption of day-to-day operations

8 Steps to Creating a Crisis Management Plan for Your Small Business

Where do you begin with crisis management planning?

Ground zero is acknowledging and acting on the need for a crisis management plan. If you’re ready to take action, follow these steps.

1. Form a Crisis Management Team

The first step is to divide responsibility. Who should form part of a crisis management team? This goes beyond designating somebody to provide information and support.

Ideally, a crisis management team begins with your senior management team. Likewise, this should include somebody from every department. You may also want to select an ordinary employee to act as a conduit between the top and bottom of your organization.

2. Identify Crises

What constitutes a crisis for your organization?

Most businesses have much in common regarding the type of crisis they may encounter. No business is immune from cyberattacks or industrial action. On the other hand, some risks may be so remote that they’re not worth spending undue time on.

For example, if your business is in Florida, natural disasters like hurricanes are a significant crisis. But a business in a rural town of a few thousand people in Wyoming probably doesn’t need to worry about international terrorist attacks.

Conduct a SWOT analysis to determine which risks your business is likely to encounter and the likelihood of them coming to bear. Additionally, you should assess the general impact of such a crisis and how prepared your company is currently.

3. Break Your Crisis Management Plan Into Four Phases

Most businesses only act when a crisis has already revealed itself. Unfortunately, on-the-fly thinking can only accomplish so much. As part of your plan, it’s wise to break each crisis response down into four stages:

1. Pre-Crisis – This is the planning phase. It’s the time spent putting in safeguards for potential disasters. It may include forecasting a crisis or taking out a comprehensive insurance policy.
2. Latent Crisis – What happens during the early signs of a crisis? The focus is on communication and information sharing to help all stakeholders be proactive.
3. Acute Crisis – Crises that cannot be contained, like a natural disaster, will enter the acute crisis phase. This is where businesses must have a plan for taking evasive action.
4. Post–Crisis – Crisis management planning doesn’t end with the crisis itself. It also includes the recovery stage. Projecting best-case and worst-case scenarios can show you what your business must do to bounce back quickly.

These four stages are what crisis management plans are, but they can simplify communication and coordination by breaking them down into these distinct categories.

4. Formulate Individual Response Plans

Classifying each threat and the likelihood of it manifesting enables you to prioritize.

Preparing individual response plans means determining how to mitigate those risks, or at least the damage. This may include building up your cash reserves, shifting to temporary remote working, or creating prepared statements for customers and other stakeholders once a specific crisis has been triggered.

5. Think About Your Insurance

As part of effective crisis management, it’s essential to consider the role of insurance. It is a fundamental tool that can mitigate the financial impact of various crises.

Various types of crises necessitate diverse insurance coverage. For instance, liability insurance for your small business can help safeguard your company in the event of accidents or injuries caused to third parties, while property insurance can shield against damages from natural disasters like fires or floods.

Identify potential risks associated with your business operations and ensure you have adequate insurance coverage for each. Regularly review your policies to make sure they are up-to-date and in line with your current business needs. It’s also a good idea to understand the claims process for each policy so you can act quickly when a crisis occurs.

Remember, insurance is not a solution to prevent crises, but rather a safety net that can help your business recover and continue operations during challenging times.

6. Develop Your Communication Plan

Communication is everything because confusion is one of the most significant crisis issues. If your employees and customers don’t understand what’s happening, it creates unnecessary panic.

Building a communication plan and a system for disseminating information can help keep calm heads. Some tips for a crisis communication plan include:

• Creating templated statements early.
• Designating someone to distribute information throughout all channels.
• Be accurate and fast.
• Prioritize who to communicate with first. Ideally, this should be your customers.
• Construct a schedule for updates on an unfolding crisis.

7. Formulate a Recovery Plan

Building and role-playing your emergency response plans is one thing, but how will you recover from that crisis?

Your recovery plan depends on the crisis in question. For example, if your servers go down during a time-limited sale, your recovery plan may involve refunding customers or giving them a bonus to prevent bad press.

Recovery plans focusing on natural disasters may include knowing where your offsite server backups are and who’s responsible for bringing your systems back online.

Ideally, you should have recovery plans based on the absolute worst-case scenario.

8. Revisit and Update Your Crisis Management Plans

Planning for a crisis and locking it up somewhere is not enough. Getting out of a crisis means up-to-date solutions that reflect the world as it is at the time.

Review your small business disaster management and continuity plans every few months. This will help you to identify emerging blind spots, bridge gaps, and include the most accurate information.

Although this might seem like a hassle, reviewing your plans every so often shouldn’t take long. After all, if you’re staying on top of the situation, any changes you must make will likely be minimal.

Build a Resilient Business to Withstand Any Disaster

Nobody wants to think about the worst-case scenario, but burying your head in the sand isn’t an option. Small businesses are more vulnerable because they possess fewer resources to manage crises.

Early planning and building a streamlined disaster management plan can spell the difference between survival and failure. The sooner you address your crisis management plan, the better because disaster can strike when you least expect it.