9 tips you can do right now to make your business more resilient in tough times. Businesses naturally experience a lot of up and down cycles, even without a raging global pandemic. In good times, we may relax, let up, spend more freely. When we’re in a down cycle, though, we begin to worry; we don’t sleep and our stress levels go up. Knowing this, we have the responsibility to put in place or build up practices and reserves to get us through these inevitable cycles by shoring up our finances in tough times to keep the doors open.
The roller coaster ride in any business during normal times is a reality we live with. And, normally, remembering that these cycles are just that, is enough. Even if we are in down times during a particular period, the rise will likely come back. If we can just ride out the storm, crest those waves, we can come through to thrive.
Being in the middle of unprecedented times, though, demands that having the right financial practices in place for your business is all the more urgent to weather the storm.
These 9 tips to make your business more resilient can help you to keep your finances on track whether the economy is in a normal slump or reeling from a global pandemic:
1. Create a budget; Know Your cash flow
Get on top of your monthly expenses by creating a spreadsheet that also includes anticipated revenue coming in for your business, both for the long term and the short term along with the regular, continual expenses. Keeping track and managing your costs even at the best of times is important. When times get tough, a good budget can make all the difference. If it’s not written down, you won’t believe how much can leak out of the coffers and in tight times, you can’t afford to let that happen.
Expenses and revenue may fluctuate and even if profitability is good, actual cash is an entirely different matter. You can’t use profits to buy bread! I owned a business that, standard in its industry, there was a gap between invoicing and collections that lagged between 30 and 120 days. Rent, payroll, and other regular bills come far more frequently than that. We need to be able to stay on top of cash flow to be prepared for changes in market or economic climate. Jesse Hagan of US Bank says that 82% of businesses owners that fail are bad at managing cash flow.
2. Develop and manage your receivables
Look at different accounting software to help manage your accounts receivables and payables. There are free solutions like Microsoft Office Accounting Express that may be one to try. It’s important to stay on top of the gaps in collections and respond immediately. It is amazing how much money can be found just by being on top of receivables and staying in touch with clients that let invoices age too far out.
3. Monitor those monthly financial statements
Every month, make sure that you are looking at these three statements: Profit and Loss, Cash Flow Statement, Balance Sheet. Know exactly what money is going out and what money is coming in. Do not make any large purchase decisions, from getting a loan to buying new equipment, until you have looked at all the data in your financial statements to see what you can really afford to take on.
4. Know the difference between working capital, cash flow and profit. This goes a long way in improving your financial stability. As we talked about above, cash flow and profit are completely different, and working capital needs for now and in the future are also a separate category to consider.
5. Review client payment practices
Look at how consistently customers are paying you to see what you can do to prevent long lag time and nonpayment issues. Consider incentive discounts for early payment and charging late fees, if you do not already, for accounts paid after a set date. You can also ask for deposits or full payments, in some instances, to be made up front before service is rendered.
6. Be smart about costs you can control
Constantly look for ways to reduce overhead. Spending too freely during flush times can easily sink your ship when times are tough. Keeping expenses low wherever you can is sensible, even if it’s just in small ways. Those changes can mean a lot of money saved, keep you within your budget, and help build a reserve for the lean times.
7. Keep your eye on the horizon
Do not let yourself get caught unaware about upcoming events, market shifts and other factors that can impact your business. Be ready to adapt when necessary. Keep an eye on the economic and market environments to anticipate what changes may be coming. Create a plan, like building reserves out of revenues and monitoring cash, to meet those changes and keep your business in the game.
8. Don’t forget a salary for yourself
Any salary you get comes directly from the profits of your business, so without leftover cash, you won’t be able to pay yourself. Set your goal for your salary and factor that into your business budget. Having this goal and knowing your numbers means you can make it a reality and grow it responsibly.
9. Give the government what you owe
Do not forget that you have to keep up your payments to the Government (Federal or otherwise). It’s usually the largest expense of any business, and many people in their lives or their businesses forget that, thinking that it may be their mortgage or other loans.
Track how much your estimated income tax liability is, make sure those payments are made to avoid underpayment penalties and manage cash flow around this expense. Also, make sure that your tax advisors keep track of unusual tax credits, temporary changes in the law or other benefits that can serve your small business so you don’t miss these.
Trust that I am speaking from direct experience here!
Take note of these 9 tips to make your business more resilient. There are many factors related to financial management, that allow us to maintain a sustainable business. We need to be knowledgeable about income, revenue, loss, budgeting and cash. To reduce stress and keep on track even in the tough times, learn to effectively monitor and manage your business finances to become more financially resilient.
