Running a business has its challenges, but usually that’s part of the fun! Business owners typically enjoy navigating the unknowns and finding solutions as they keep an eye on the horizon of success.
But in today’s COVID-19 world, businesses of every age and stage are facing challenges with no clear solutions. We’re watching the markets, the latest government regulations, and the bail out funds. We’re analyzing our financials and 2020 plans, looking for ways to gain some leverage.
As a business owner, when you see your bank balance dwindling and income stalling, you know that conserving cash is priority number one. And while that is a needful goal, the path you choose to get there is crucial. Generally speaking, I’m seeing companies take one of two paths.
Path 1: Slash Expenses
When cash is in short supply, most of us immediately switch to emergency power mode. We look at every dime we’re spending to decide if that expense can be cut or put on hold. We slash everything from employees to marketing to supplies. Of course, during the pandemic, most nonessential businesses have had limited hours of operation. This has affected the need for manpower, communications, and inventory. Some companies have decided the best action is a quick slash of these inputs in order to save cash now.
What is concerning about this path, however, is that it is more focused on what to stop doing instead of how to pivot the business toward success. There is another path that conserves cash for the greater purpose of business success.
Path 2: Stimulate Income
Whereas the first path is focused on slashing expenses, this path is focused on stimulating income. It includes curtailing spending wherever possible, but it’s done in light of your business’s financial plan—which is the roadmap to your decision making, even in the middle of a global pandemic!
So the first step on this path toward growth is to review and update your financial plan. Things have changed, so your plan needs to change. It’s wise, in light of economic uncertainty, to set shorter goals that keep you moving toward your long-term goals. But your plan will keep you from making unwise cuts that only hinder you in the long run.
Financials tell you a story and help you make sound decisions. You’ll need to run projections for every move, which will take a bit more effort. But doing so will empower you to make choices that set your business up for financial success. For example, would it be best to decrease your payroll expenses by firing employees or by placing them on furlough? There are many factors that play into such decisions—factors that are outlined in a solid financial plan. You need to weigh out the short-term cash relief with the long-term need for a skilled workforce. You need to weigh out the loyalty that you will build or destroy when employees are retained or released during very scary economic times.
These are complex decisions that I understand firsthand as a business owner. Much of my work has continued, but it’s being executed in very different ways than before. For example, tax season is always quite demanding upon my team. Long hours are necessary, but I choose to invest in my team’s mental and emotional well-being each year to keep them sharp. This line-item expense is budgeted, in my financial plan, but this year’s remote working meant that I didn’t use the funds in the same way. I could have slashed this expense to save some cash. But I chose instead to find a creative way to boost team morale and let them know how much I value them. Investing in my team does take money, but it’s way more costly to lose an employee I’ve invested in over the years.
Ultimately, your financial plan is simply a way to track the funds you need that will allow you to do what you love. As you review your financial plan, you have choices to make in how you allocate those funds. You choose where that money goes and how it helps you do what you want to do. Your financial plan helps you know what you spend and why, as well as how your business impacts the people it touches and the environment. And even though we’re all facing various restrictions due to the pandemic, you still get to make choices on how to operate your business and the direction you want to go with it.
To help you see the possibilities, we’ve developed a free Excel Cash Flow Worksheet that we offer our clients. Once you register, you’ll receive a link to download the tool. From there, you’ll just plug in your numbers to see projections for various growth options. Officeheads is here if you are ready to move toward growth with a solid financial plan. Jump on my calendar!!