Business
During an emergency financial crisis, or time of financial distress, how do we respond in our business with our business finances? When we’re overwhelmed, and having natural stress responses, it’s helpful to have some pre-planned decisions made that you have thought strategically about. We're going to go through the different phases of a financial emergency plan, just so you can get a sense of what this might look like in your business and some of the actions you may take. Discover how you can strategize to make tough financial decisions for your business that align with your core values. What we’re talking about: The Pre-Work: Recognize Your Money Values Phase One: Determine Your Bottom Line Number Phase Two: Reduce Costs Phase Three: Preserve Your Income Phase Four: Identify Financial Support The Pre-Work: Recognize Your Money Values Often, we have a really strong emotional attachment to certain expenses in our business. Our emotional attachments are rooted in our deeply held beliefs in how we interact with money. These are your money values. When you recognize your top four money values, you can use those as a compass when you get to the hard decisions that you have to make in your financial emergency plan, so you don’t feel like you’re compromising what's most important to you. Phase One: Determine Your Bottom Line Number Your bottom line number is the absolute amount of revenue you need to bring into your business, to both hit your business's break-even point, and for you, the owner, to personally live off of. So typically, when we talk about a break-even point in business, this is what you need to make to cover your costs and your expenses. However, in a financial emergency plan, we are looking at our break-even point, but we're also looking at what you need personally. You're going to identify your essential monthly business expenses, and you're going to add that to your portion of essential monthly personal expenses. And then to find your bottom number, you add those two together. Phase Two: Reduce Costs Phase two is where to get strategic about what costs you will reduce and at what point in time. Begin by simply categorizing all business expenses. There are three categories: essential expenses, convenience costs and unnecessary expenses. After looking at your business costs, as well as your personal expenses, for 1-3 months, you are going to start grouping your expenses into rounds of cost cuts. Once you have looked at everything you have, it’s time to decide when you are going to cut each round of costs.. Round one is the first group of expenses that you'll cut, which are the low impact expenses. Round two includes your medium impact expenses. The final round are the ones that you are holding out as long as possible to cut. Finally, you're going to set some financial indicators to determine at what point you would make these cuts. It is important to really know when you are going to take these actions instead of just either taking them all at once, and realizing you are unable to operate your business, or not doing any action because you're so overwhelmed by all the decisions at that time. Phase Three: Preserve Your Income Next, you need to do a revenue assessment. This is where you make a list of all your offerings into broad categories. Look at your different sources of revenue and think how would each of these be affected by a financial emergency, and which ones would take the hardest hit. After you do that, you want to estimate your losses. Start with the really high impacted ones and begin estimating how much money you expect to lose in revenue because of the crisis. Historical numbers, as well as what exactly is impacting the income drop, will assist in determining what the percentage lost will be. You also need to consider your customers’ shifting needs and priorities. Estimating the loss of revenue, and gaging the current needs of your customers will help you to pivot your revenue. What can you do to meet customers’ needs and make up those revenue losses?. This is where creative thinking is essential. Phase Four: Identify Financial Support When there is nothing left to cut, and you are no longer able to meet your bottom line, it is time to seek financial support through loans, grants, and other fundraising options. Small business loans, and Paycheck Protection Programs through the federal government are good to consider, but also keep in mind state, city, and county loans and grants that are specific to certain industries or locations. Many times these funds are less competitive. It's good to know what types of loans are available to you before you're in the middle of a crisis. Some are available for special circumstances, but others are available and are not just specific to a crisis. There are also. fundraising options like crowd-surfing campaigns, and friends and family loans. Is your emergency financial plan in place? LINKS MENTIONED Making Sure There's Enough: Creating a Financial Emergency Plan for Your Business (pay what you can workshop)