The last few weeks have been extremely stressful for business owners across the world but not to fear, this won’t last forever. I want to fill your financial toolbox with the information you need to pull through the next few months and come out on top when this storm blows over. So let’s dive right in and take a look at what your business can do, right now, to manage the finances during and after a crisis.
#1 Make Sure the Bookkeeping is Up to Date
First and foremost, the only way to start managing the finances is to make sure that the bookkeeping and record keeping are up to date AND accurate. Ensure that all transactions have been entered into the accounting software, properly organized/classified and that the necessary accounts have been reconciled. Have your bookkeeper or accountant review the information to make sure that everything is entered properly and on point. Once this is done, you’re ready to move to step number two.
#2 Review the Financial Statements
Now that the bookkeeping is up to date and accurate, you can review the “big 3” financial statements… the Balance Sheet, the Income Statement
and the Statement of Cash Flows. If you’re not sure how to read these financial statements, do not worry. We host a webinar that teaches you how to properly read and understand the information that lives on these reports.
When looking these reports over, compare different periods to each other. For example, review a report with each month side by side for the last year to help point out anything out of the ordinary. Step number three ties in directly with this step because while you’re looking for anything that sticks out like a sore thumb, you’ll be looking for any adjustments that can be made financially in the business, like cutting expenses.
#3 Sort Out Expenses
While you’re reviewing the financial statements, this is also the time to examine the expenses in the business with a fine toothed comb.
- Are there any recurring subscriptions that could be cancelled?
- Are there any expenses that the business hasn’t used in a while and could be nixed?
This is the quickest and easiest way to save some serious cash. Even in my own business, it never fails that there are a few recurring expenses that just don’t make sense to keep around anymore. After you’ve done this in the business, head on over to your personal finances and do the same thing there. You never know what you might find lurking in your personal finances that could be cleared out too.
#4 Prepare a Cash Flow Forecast or Plan
The best way to help prepare for the next few months and leverage your business for continuity is to create a cash flow forecast or plan. Last week’s blog post was all about how to create a cash flow forecast. If you’re not sure how to create one of these bad boys, check out the blog post here. The nitty-gritty of the cash flow forecast is to gain an idea of what the cash coming into the business will look like as well as create an idea of what the cash leaving the business will look like. With a picture of the cash flow, you can then decide if you need a loan or if your cash reserves will hold you over to more profitable times. If you do need a loan, this gives you an idea of how much money you will need to borrow.
#5 Avoid New Debt if Possible
With the SBA offering up relief loans for businesses across the country, I know a lot of businesses that are panicking. The thought is that they need to jump on the train and get a loan RIGHT NOW to float the business. My question to you is, do you know how much your business would really need? What is the plan to boost the revenue when things get back on track to repay the loan?
The last thing you want is to have an unnecessary loan payment looming over your head when it wasn’t necessary. Before trying to take out a loan, take a close look at your financial statements, cut expenses and create a cash flow forecast. This will give you a much better idea of IF you need a loan and if so, how much needs to be borrowed. If you do end up taking out a loan, make sure to create a plan on how to repay the amount back. Defaulting is never a good idea.
That about wraps up the steps that you can take, right now, to manage your business finances during a crisis. If you have any questions, please reach out to us. We work with all of our clients to be prepared for this kind of event by proactive and preparing a financial road map system tailored specifically to their business.