I don’t know about you, but the pandemic has infiltrated almost every conversation I’ve been having the past couple months, especially in business. Initially, it was about the suddenness of the whole thing and how we’re all going to get through this. The small business community has been hit hard; it’s been both tough and inspiring. Lately, I’ve had some really interesting conversations about preparation: how to recession-proof or future-proof your business, questions about having an emergency fund, etc. These are amazing questions to consider as a small business owner.
Let’s dig into this. First, a look behind the curtain at which businesses are faring better right now and why. Then we’ll explore the lessons to be learned from this and how you can apply it to your own business.
Which businesses are doing okay and which are not?
The easy answer is those who’ve seen a huge hit in revenue aren’t faring well, and there is truth to that. This Onion article talks about a study that found most restaurants fail within a year of it being illegal to go to them. It’s so terrifyingly accurate it’s funny - no study needed.
I challenge you to put the easy answer of industry aside and look deeper. The reality is that within industries, some businesses are struggling more than others. Some have already closed, and some are going to make it through. Why? There are a bunch of factors. Businesses that have really loyal customers are seeing support because their fans don’t want them to close. Entrepreneurs who have the tenacity and willingness to figure out how to continue serving their customers in a different way and did so quickly are doing okay. The “pivot” has been discussed so much it’s a drinking game.
From a financial standpoint, the businesses that are doing okay are the ones who have paid attention to their finances.
It is quite common for business owners to keep their finances on the back burner. It’s an easy thing to ignore because you have so many other pots on the stove and it doesn’t seem urgent. There’s also a tendency to chase revenue, thinking that once you hit a certain level the rest will just work itself out and it will be more exciting to look at the numbers. This is like trying to get to retirement without paying any attention to savings - human nature generally doesn’t work like that. If you don’t pay attention to your finances, your business isn’t likely to be profitable, and those aren’t fun to run. It’s precarious, like living paycheck to paycheck, and any blip of a storm could cause a big issue. Those businesses aren’t faring well right now
What you measure will improve.
The ones who have paid attention have naturally built a financially healthier business. There’s an timeless principle that goes, “what you measure will improve.” These entrepreneurs have slowly learned financial principles and incorporated them into their businesses. They know how much they need to make to stay afloat. They have a cushion. They also have their numbers together and could analyze them to come up with a plan faster, including having the right information to apply for loans. They’re faring better.
What lessons can we learn from this? How do you build a stronger business?
It’s a lesson we have to learn again: we’re not invincible. Storms will come as a business owner. Our world is unpredictable. It could be an injury or illness to yourself or someone you love. It could be a key employee that unexpectedly quits, embezzles, or even passes away. It could be physical damage such as looting, flooding, or fire. But the next time, you probably won’t be going through it alongside every other business owner in the country with government help available. It’s time to build your business finances, your boat, stronger, so you can weather the storm with more ease. It’s time to do what you can to future-proof your business - and start paying attention. It’s not a guarantee, but you’ll definitely be in a better position, especially for the smaller storms.
Specifically, here’s the biggest thing I believe you can pay attention to that will make a difference financially: build profit into your business. There are multiple ways to do this. Budget for it. Set it aside in a separate bank account. Explore your options and whatever method you use, make sure you stick to it.
Profit does a few things for you and your business. First, focusing on profit forces you to make sure your pricing structure and expenses are in line. Profit is a natural “cushion” in your business. If you generally have $5,000 per month in profit, you can temporarily lose $5,000 in revenue during a storm and be okay. Once you have profit, you get to make some fun decisions about what to do with it. Pay yourself profit distributions. Start saving up for a larger project. And build a rainy day fund. Work up to having 3-6 months worth of expenses on hand for those really big storms. That’s hard to do without having profit/money to save.
Paying attention doesn’t have to be overwhelming or hard. The first step is to make sure your numbers are done on a regular basis, and then start learning. Take a half hour to an hour once a month and learn how to read financials and learn about financial principles. In a year or two, you’ll be miles ahead and your business will be stronger for it.
If you want this to be easier, we’re here for you. Find out how we can help you today.