As the tsunami of change in our envelops us all, it’s easy to be overwhelmed and not be clear on what actions to take to keep our businesses afloat. The constant updates and uncertainties are extremely unsettling for business owners and will create near death situations for many businesses. Getting back basics with some analysis and forecasting can help, to really understand where you sit financially and what the options are. The numbers don’t lie, so even if they are ugly, you can plan for it and get some certainty about what to do. Now is the time to do some planning.. not the hopes and dreams type, but for survival.
One of the most useful things you can do right now is to create a cash flow forecast for the next 12 months. Cash is always king in small business, but right now it’s a higher power. Keeping cash is crucial to survival, so you need some sense of how long it’s going to last. Here’s what to do:
- Create a 12-month spreadsheet with one month per column (can also be weekly). The best way to do this is to export financial results from your accounting software (in Excel), as it will show all of your expenses already that you can use as a starting point.
- In the revenue section for each, add in estimates of what you think you will earn each month. This is tough in this climate, so be conservative. Do the same with expenses.
- At the bottom, add in all future tax liabilities on their due months.
- Add in projected bank balances for each months, starting with your current balance and linking the total net amount out each month.
- This is the reality check time. What is your available cash at the end of each month? When does it run out?
- If that’s not looking good, the next thing to do is to go through all of your expenses. If you need to cut, then you can change the payments in each row to see how it affects your cash situation. That includes your own wages and could include things you never thought you would have to live without.
- If it’s still looking non-sustainable, then other funding options will have to be looked into.
This process will give you a guide as to how things will play out, but there are many assumptions, so it needs to be reviewed regularly. Your comfort level for cash is very subjective, as is your confidence in sales targets. Look at optimistic and pessimistic scenarios. Set up some red flags, so if things go worse that plan, you can take action immediately.
New ways of doing things.
Finding a way through the current situation will need some lateral thinking, so now is the time to look at new ways of doing business. That can mean using technology, or could be a new take on your business activities. There will be winners in this (food delivery, streaming, etc) – how can you make the most of the change in the market? Are there opportunities?
Keep in touch with your clients, as they are all in the same situation and also want to keep trading. It’s possible that some review of pricing could help to change your competitive position too, or maybe projects that aren’t your ideal may suddenly be all that’s on offer. Being engaged now will build strong relationships for the future.
The public help from government is all over the news, but your fellow business people can also lend a hand. Don’t be afraid to reach out for help. Even if you don’t need extra finance, loans or safety net right now, knowing it’s there can give peace of mind. All range of suppliers might be able to be flexible with you, wanting to keep you as a client in the long term. I have already had landlords for some clients agree to temporary rent reductions.
It looks like 2020 will be a roller coaster ride for business, so get ready to hang on tight. Working together, getting advice from others, and taking care of ourselves is very important. Mental health pressures will be intense for some business owners, so let’s all reach out and make sure everyone is OK.
Let’s hope it doesn’t last too long.