Continuing our series on How to Run a Business During an Economic Downturn, we took a look in Week one at Marketing Your Business Like Never Before Running a Business During an Economic Downturn – Week One | Localmize. Week Two, we discussed Adjusting Your Brand Week Two: Running a Business During an Economic Downturn￼ | Localmize. Week Three of our Four part series brings us to Financial Strength; Get Your Finances in Order. The only people that really like to talk about money are the people that have it, like a lot of it. For most of us commoners, talking about money can get a little uncomfortable. Most of us feel like we’re out of our depth of knowledge if not just completely out of the conversation because we’re just making ends meet, “What’s there to talk about?!” However, you feel about your financial situation, we’re going to give you some ways to dig in and get your financial house in order, once and for all. Gaining control and understanding your money can help your business during a great economy. It can be the difference between saving your company or losing everything during a recession.
Week Three: Get Your Financial House in Order
Is your financial house made of cards or built on stone? There are a couple of professionals you can or possibly should call on for the best financial advice for your business.
These three professionals, whether you use one or use them all in conjunction with each other, can make huge differences in your financial portfolio. A Financial Advisor can help you find financial assistance that might be available to your business, as well as make you aware of ways to cut costs and grow your existing base. A Professional Bookkeeper is a must for those of us that truly don’t know what’s coming in or going out. Don’t be afraid to ask for help and spend money on a professional that can help you understand your finances better. A CPA is also hugely qualified to help you get your financial book of business in order. CPA’s also should have ideas of programs and government aid programs that can help your business. Once you’ve made the decision about which professional to reach out to or called on all three, these are the areas of your financial business that you need to focus on:
1. Fixed Expenses
You need to start a budget. Step one of any budget, list your fixed expenses. Your fixed expenses are things like rent, insurance, fixed utilities such as internet and phone, and property taxes. Now, while these items on your budget are considered fixed expenses, that doesn’t necessarily mean there’s no wiggle room. Take some time to reach out to each owner of that expense. Since Covid, there are a lot of options for lowering payments, but they are not advertised or offered to you. You have to ask. So, pick up the phone or go see your landlord face to face. Ask for lower payments or deferred payments on ALL fixed expenses in your budget. You may get told no, but it may just surprise you, and a yes is always worth the ask!
2. Variable Expenses
Variable expenses are harder to plan for in a budget. They still come out every month but can’t be predicted as easily. Raw Materials, Commissions, Distribution and Hourly Wages are just a few examples of your variable expenses. Trim the fat, cut back where you can, order in bulk on items that you can order once and sell throughout the year. As you’re looking for areas to cut or trim costs, stay away from trimming employee benefits or healthcare, accounting or bookkeeping and marketing! You know how we feel about marketing from Week One Running a Business During an Economic Downturn – Week One | Localmize. Now is NOT the time to trim that budget. Keep advertising!
First off, the basics: Check your rates and compare to be sure you’re getting the most coverage and best rates. If you decide you can save money by changing, hold tight on that decision for just a sec and take a closer look at your current policy for Commercial Property Insurance. There are two areas where “loss of income during a recession” might be an option for you. If these aren’t an option in your current policy, save that money and go ahead and switch to better rates. You’ll want to check your policy for two areas that may help:
- Business Interruption – usually covers damage to a business where income was affected. The argument can be made that “contamination” during Covid made your property unusable, and therefore is cause for claim damages to be paid.
- Interruption by Civil Authority – there are different extents of coverage available but if you had to close your doors or reduce hours due to Covid regulations, you may be entitled to compensation.
When it comes to insurance, the courts usually favor the policy holder over the insurer. Might be worth the claim.
4. Debt & Low Interest Loans
Everyone is scared of interest rates right now, but that doesn’t mean you shouldn’t look into a lower payment model for your high interest rate debt. If you’re carrying debt across multiple payments, now may be the right time to look into a small business loan before rates jump even more. One payment can drastically reduce your overall debt payment when you consolidate. The Fed recently raised interest rates by .75%, which was one of the largest jumps in interest rates since the 90’s with rumors of rates going even higher. While the rate right now is high, it may only get higher. If you are considering a loan, you may want to make that happen now instead of waiting. Always do your own research on loans and discuss the decision with your Financial Advisor or CPA.
Get Your Financial House in Order
Economic downturn is never easy. This is not the first, nor will it be the last time we see a recession. Having honest conversations with your vendors, your bookkeeper and your employees about the state of your business can help alleviate some of the stress you’re carrying while possibly making your employees more confident in their positions with your business. Identifying ways to save money during a recession will only help your business. Get your Financial House in order now. Take a look at your expenses, create a budget so you understand what’s going out each month and what’s coming in. Hire a Financial Advisor or bookkeeper to help keep you on task so that you’re making smart financial decisions for your business and your future.