How to survive...and thrive...during an economic recession.
We are in the midst of one of the worst disease pandemics in modern history. The COVID-19 virus is wreaking havoc across the world – not only on our physical health, but also on our financial health. Those of us who own small businesses and small non-profit organizations will feel the effects of this economic fallout quickly. But the exact effect will you feel is entirely up to you. Will you feel a decline in your business as anxiety and fear build up and ultimately force you to shut your doors? Or will you recognize opportunity and capitalize on the current situation to rise to success and solidify your business as one that is built to last?
More millionaires were made during the Great Depression than in any other era in U.S. history. While there are many reasons for this, the most significant reason had to do with mindset. True entrepreneurs (and that includes non-profit leaders by the way) step up to the plate when times are tough and recognize opportunity in the face of disaster. They also plan for disaster well ahead of time and know what to do when the proverbial “stuff hits the fan.” As your Chief Financial Officer, it’s my duty to help you recognize opportunities, pivot around any obstacles that present themselves, and gather whatever resources you need to weather this storm and come out stronger than ever.
Here are ten steps you do…and don’t…need to take RIGHT NOW to WIN during this pandemic:
DON’T Panic. When you panic you put energy into fear and make decisions from a fear-based consciousness. Take some deep breaths and center yourself before making any business decisions. This will allow your intuition to guide you rather than any mass hysteria. If you don’t have a meditation or spiritual practice, now is the time to develop one! And yes, as a certified professional coach and spiritual practitioner, I can help you to do this.
DO Rely On Your Team. You should always have a team of professionals on your side when working on your business. Business is complicated with many twists and turns (like the one we are experiencing right now!). So rely on your team for advice before taking any action. They can provide perspectives that you perhaps never thought about. Your team should include a management accountant (like me), an attorney, a marketing consultant, a business coach, and a personal financial planner. If you don’t have this team in place…start putting one in place RIGHT NOW.
DON’T Make Cuts Yet! During times of stress and panic, we naturally react by looking for things to cut. Our brains naturally look for the “easiest” way to correct a situation, which is to reduce expenses since they are mostly in our direct control. But the best…and most lasting…way to turn around a disaster and “right your ship” is to focus on increasing your revenue. In other words…rather than CUTTING your way into profitability…I want you to GROW your way into profitability. The problem is that it’s not always in our direct control and hence feels harder and more “mystical” to do that. But remember: You can’t cut your way to profitability in the long run because cutting expenses will reduce your ability to make money, which will begin a downward spiral. This is why its even more important to stay grounded and avoid the temptation of cutting and instead focus your attention on the opportunities that present themselves. And there are ALWAYS opportunities that open up with any situation and you CAN grow during an economic downturn. So resist the temptation and refocus on how to better use your resources to grow. Of course your CFO can certainly help you to do this.
DO Diversify And Create New Revenue Streams. Along with this last point, let’s refocus on your revenue. How diverse is your revenue stream? If you only have one way of making money then you’re “dead in the water” if your customer base stops buying what you’re selling. Insulate yourself by developing multiple streams of revenue from a diverse collection of products, services, customers, industries, geographies, etc. It may be helpful to imagine yourself as a seasonal business: If you only generated revenue during certain times of the year, how would you create sales streams during the off-season? Gather your team, put on your executive hat, and get to brainstorming. Your CFO, business coach and marketing consultant can be incredibly helpful here by the way. We have the ability to inventory all your available resources and figure out the best, most efficient way to use them to generate additional income for you.
DON’T Lose Track Of Your Sales Pipeline. This is not the time to ignore your sales and marketing. During times of panic its easy to feel really pessimistic and think “what’s the use…there’s no one out there to buy.” Nooooo! Wrong answer! There is always someone out there that can and will buy from you. And if you really feel that your prospects have dried up, then I’m going to point back to the last point which is that you need to target a different set of customers with perhaps a different set of products. And then you need to watch your sales pipeline like a hawk. How many prospects do you have in your pipeline right now? Who’s in what stage of your sales cycle? How much money is that sale worth? What is the probability of close? We need to get visible on how your sales are looking in order to plan the ripple effect on your business. Use a CRM system or even a simple spreadsheet to plot out what your sales will look like so we can forecast how much money you will most likely be bringing into the business. And I recommend updating this forecast every day during this period until things calm back down and the economy shifts back to normal. If you don’t know how to do this, I am happy to help you set up a tracking mechanism.
DO Update Your Financial And Cash Forecasts. Once you update your sales data, you can update your financial forecasts and cash forecasts to see how your business is projected to do. Will you be heading for a loss? Or will you be okay? You won’t really know until you update your projections. Any decision you make that doesn’t directly incorporate your updated projections is pure guesswork on your part. Its an emotional decision that is not based in fact. This is not the time to be making emotional decisions (as mentioned in my very first point). We want to gather all the facts of the situation and make good, educated decisions. Which must necessarily come from a review of your financial projections. Once you update your projections, you can see what your business will really look like and then make important decisions like cutting expenses. Yes you have my permission to cut expenses if needed (and only if needed) for some quick relief. Its not the best solution but it can be helpful to relieve some pressure. But again, let’s make sure that it is absolutely necessary before we do it.
DON’T Neglect Your Bookkeeping. Do not let your bookkeeping get behind during this time. Yes it’s administrative work and you may feel that you have better things to do. But your financial data will quickly become your anchor point during this time period. We need good data to update your sales projections and your financial and cash forecasts. Without accurate information we are again making decisions based on emotion and not on fact. So make sure that your bookkeeping records are updated and accurate so that you can be watching your business’s financial health like a hawk. If you are concerned about cost, learn how to do this work yourself. We have a program that teaches you and supports you on how to do your own recordkeeping using QuickBooks. Or outsource it. Or do a hybrid method where you do some of the bookkeeping while a firm does some of the more complex bookkeeping functions. It doesn’t matter…just make sure it gets done!
DO Seek Financial Assistance. First, update your cash forecasts. Are you projecting any cash shortages? If so, now is the time to take proactive action and start shopping for loans or lines of credit. Do not wait until the last minute. You can always open a line of credit, for example, and let it sit dormant for a bit before tapping it. Set it up now though so that it will be ready and available for when you need it. Now…the million-dollar question (literally) is…Where do I find capital during this troubling time? A bank may not be the best place to look right now, as they have many regulations that prevent them from loaning to small businesses or non-profits, especially during economic downturns. But luckily there are other types of lending institutions that are willing and able to loan out funds. CDFI’s, for example, are a great source of capital. A CDFI, a Community Development Financial Institution, is a quasi-public, quasi-private non-profit organization that exists to boost a local economy, which often means pumping money into the local small businesses and non-profits. They tend to have much more relaxed lending policies and favorable lending terms, making them a natural first source to scope out. They exist all over the country – just do a quick search for the term “CDFI” and you’re bound to find one near you.
DON’T Forget Your Insurance Policies. I HOPE that you have some insurance policies in place that protect you against the loss you’re now facing. Risk is inherent in any business. Disasters come quickly and suddenly and can devastate a business that is unprepared. And how do you even prepare for something that you don’t know about? It’s difficult to say the least. That’s why insurance was created to help mitigate the loss of any unknown disaster. I am a huge advocate of insuring yourself against any risk you can. And with business, there can be many areas of risk. This is certainly a longer discussion, and I have a few blog posts on it, so check those out. As your CFO, I can help you evaluate the areas of your business that may be at risk and help you work with a broker to protect against those. But right now…it may be too late for this since…well here we are! So let’s get on the phone with your broker to see what your policies cover and if you can get some payouts from your policies. Insurance was made for situations just like this!
DO Recession-Proof Your Business. This will NOT be the last time that your business goes through something like this. The economy naturally goes through upswings and downswings. If you want to build a business or organization that lasts into the far future, you must learn how to build resiliency into your business against these swings. And no time like the present! So take this as a real-life learning opportunity to fortify your business against any potential recession.
Whew. If you take all of the steps I mentioned above, you are sure to beat this downward economic trend and come out ahead. Contact us today if you would like some help.