Managing finances for a small business in a wobbly economy can feel like staring down a long, dark passage. Is that light down there at the end of the tunnel? Or is it a train?
You know what? Either way, you’re not chained to the tracks.
With accurate, timely data about your business’s financial picture, you have what you need to stride down that tunnel and jump out of the train’s way, if need be. Facts and data give your business the economic reflexes of a ninja. 🥷
If the news has been making you nervous lately, chin up. We’ve got your back – and some tips to get you ready for whatever the economy throws at you.
Is your business ready for a recession?
We’ll let the economists debate whether a downturn technically qualifies as a “recession” or not. Because to a business, it doesn’t really matter. Any pullback in the economy can shake up operations.
Businesses that are ready for it can ride it out, keeping a keen eye out for hidden opportunities to grow. But if you don’t have accurate facts about where your business is right now, you’ll flounder.
At best, you'll come limping out the other side of the downturn with a list of things to rebuild. At worst, your decisions (or indecision) could cost you your company.
5 ways to ‘recession proof’ a small business
Surviving a recession is never guaranteed, but you can definitely improve your odds by adopting some battle-tested tactics for managing small business finances.
1. GET A HANDLE ON YOUR CURRENT FINANCIAL SITUATION
Before you can plan for the future, you have to know where you are. Streamlined, up-to-date accounts give you the snapshot in time you need to make quick adjustments.
You’ll know if you have the cash to jump on a good investment and still make payroll. On the flip side, when a projected deal falls through, you’ll know where you can pull back to make up the difference.
To make end-of-month reporting easy and accurate, someone needs to record transactions and keep up the books throughout the month. If you don’t have someone on staff, outsource it. An experienced bookkeeper can keep your data clean and up to date in just a few hours a week.
2. KNOW WHERE YOUR MONEY IS COMING FROM (AND WHERE IT’S GOING)
How much do you expect to make this month? How much do you expect to spend?
Now be honest – are your answers based on data or on a hunch?
You can’t guess your way through a recession. Run regular cash flow statements to see exactly where your money comes from and where it goes. The trends you’ll see let you forecast how much cash you’ll have on hand next month or next quarter and adjust operations to suit.
What happens when your projected revenue and projected cash don’t line up? If your revenue projection was on target but you’re missing cash on hand, it probably means someone didn’t pay their bill on time.
(So frustrating.)
First, make sure it wasn’t your issue. Invoice promptly and make it easy for customers to pay you.
Customers that are tough to collect from now will give you even more of a headache if the economy takes a turn. Late payments dam up your cash flow and make it hard to meet your expenses, so clear the logjam and makedebt collection a top priority.
3. MAKE AN ACTION PLAN BEFORE YOU NEED ONE
Using your cash flow statement, balance sheet and profit and loss statement, project where your business might be in the coming year if nothing changes.
Next, imagine a best-case scenario. What might trigger an avalanche of cash? What would that allow you to do – pay off debt, buy new equipment, invest in a new campaign?
Finally, imagine a worst-case scenario. What would happen if your biggest customer pulled away? How would it impact your cash flow, and how could you cover the loss?
Making a “what-if” plan while things are calm helps you keep your head if your worst-case scenario comes true. Panicky decisions made in the heat of the moment are rarely good ones.
4. ACCESS WORKER PRODUCTIVITY
Is your business organised so your employees can be efficient and productive? Or are they wasting their energy on low-level tasks that don’t add to the bottom line?
There’s a balancing act here. Too many workers, and your payroll is out of control. Too few, and your employees burn out.
Your people are your greatest asset, so protect your team’s time (and sanity) by letting them focus on core jobs and filling the gaps with flexible workers. Contractors These pros operate seamlessly as a part of your team at a lower cost . They lower personnel costs because you can scale their hours and duties up or down as you need to.
5. TUNE UP YOUR BUDGET
Look at where your money is going – then look at it again under a magnifying glass. A lot of businesses could manage their finances better with some pretty painless budget trimming.
Look for easy savings like
having the office cleaner come once a month instead of weekly
switching to lower-cost vendors or service plans
consolidating or refinancing debt
tightening up your accounts payable so you avoid late fees (and maybe even get early payer discounts).
And remember that time is money. If your salesperson is spending a lot of valuable time on administrative tasks, or you’re paying an accountant’s rate for bookkeeping tasks, outsource the extra work and free up their time for activities that move the needle.
Peace of mind in any economy
No matter what happens in the wider world, good financial practices give your business stability.
If it turns out you’re walking toward the light at the end of the tunnel – a.k.a. a boom time with waterfalls of cash and streets paved with gold – you’ll be ready to make smart decisions that grow your business.
If it turns out you’re walking toward a train – a.k.a. a recession – you’ll have the ninja-like reflexes you need to get around it.
Our bookkeepers can keep you up to date, streamline your processes and help you set goals (with plans to reach them). Give us a shout to set up a no-obligation 30-minute call to talk about:
Debtor collections
Accounts payable
Accounts receivable
Banking reconciliation
Reporting
