Why is a resilient recovery plan important for SMEs?

Disasters don't discriminate and for small and medium-sized enterprises (SMEs), which represent around 90 percent of businesses worldwide, the stakes are particularly high. There are multiple issues for SMEs to tackle every day, and a lot of opportunities and risks to analyze and act on to stay relevant and financially stable.

SMEs typically take longer to recover after a disaster than larger businesses, while a single disruptive event can lead to costly business interruptions or even closure. Given these vulnerabilities, it’s crucial for SMEs to move away from a reactive approach to risks by embracing resilient recovery planning which in turn can enhance regulatory compliance, market demand and competitive advantage.

What is resilient recovery?

At its core, resilient recovery refers to the capacity of a business or community to recover from shocks in a way that helps to prevent future disruption. Plans are based on a tailored risk management framework that looks beyond damage repair. For SMEs this means not only getting back on their feet post-disaster but innovating and learning from those experiences to reduce areas of vulnerability.

Take a small business that has suffered flood damage due to its location. A traditional recovery model might look at fixing any damage and re-opening as soon as possible to avoid potential losses. A resilient recovery model, on the other hand, would proactively address this risk to prevent future disruption. This approach may involve:

• Moving critical inventory to higher ground.
• Installing flood barriers.
• Partnering with an insurer to review coverage.
• Developing an e-commerce strategy to continue sales during potential closures.

This approach allows the business to manage the immediate risk of flooding and builds a framework for continued business.

What are the benefits of building resilience into recovery plans?

A resilient SME is one that is prepared. Business continuity planning, which anticipates potential crises and develops strategies to mitigate them, is key to resilience.

By being proactive in planning, businesses can safeguard their operations, protect their employees and ensure they can continue to serve their customers. It might also have unexpected benefits in:

• Financing: SMEs often have fewer resources and smaller financial buffers than larger companies which means they are less resilient when disasters strike. By building a plan which incorporates resilience against future problems, SMEs can better manage cash flow and resources during a crisis or closure, without relying on external sources of finance which can be hard to obtain.
• Confidence: Having a clear recovery plan in place can help to build confidence and a sense of security among employees, suppliers and customers that the SME can maintain its operations even under adverse conditions.
• Reputation: With a framework in place to mitigate potential threats, an SME can respond more quickly to a crisis, reducing the costs associated with closure. This is not only beneficial financially but can help to boost a brand’s reputation in terms of its reliability.
• Community building: SMEs play a vital role in the well-being of the wider community and economy. By employing local people, creating opportunities for the underserved and keeping revenue within a local area, SME operations are integral to the social and economic fabric of their communities. Their recovery can mean the difference between economic stability and periods of hardship.

What are the steps in creating a resilient recovery plan?

Creating a resilient recovery plan demands a clear understanding of operations, potential risks, and the steps necessary to bounce back. That’s why all seven of the steps below are important for creating a resilient recovery plan tailored to individual organizations.

1. Identify potential risks and disruptions that could impact the business, including natural disasters, cyber-attacks, economic downturns, supply chain failures, and other emergencies.
2. Prioritize the risks based on their likelihood and severity to focus on the most critical areas first.
3. Analyze how each risk could affect different areas of the business in terms of critical functions, processes and resources.
4. Formulate strategies to mitigate risks in different scenarios.
5. Organize recovery strategies into a framework with responses and recovery procedures for each scenario.
6. Review insurance policies to ensure they provide adequate coverage for various risks.
7. Update the recovery plan as the business and its environment change by monitoring new risks and incorporating any lessons learned.

Tailoring the steps and solutions required for an individual business may seem like a daunting task for an SME, which is why many organizations choose to collaborate with risk professionals to provide practical guidance, support and training.

Collaboration for resilient recovery

By working collaboratively with risk management professionals like Zurich Insurance, SMEs can establish comprehensive and tailored recovery plans that address both immediate needs and long-term strategies for resilience. Within this, the role of insurance extends far beyond providing financial support. Through risk assessments, insurers can help SMEs to identify key areas of potential vulnerability, create plans that cover both traditional and emerging risks, such as climate and cyber, and provide solutions that can help SMEs mitigate threats.

The concept of resilient recovery is integral to modern business strategy, particularly for SMEs. Through proactivity, planning and collaboration, SMEs can arm themselves against future shocks, ultimately contributing to a more robust and reliable economic future for themselves, their employees and the surrounding community.