During a 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’ve already thought strategically about. In this episode of Ask Andi we’re going to go through the different phases of a financial emergency plan and discuss the types of actions you could take in a financial emergency,
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 strong emotional attachment to certain expenses in our business. Our emotional attachments are rooted in our deeply held beliefs about how we interact with money.
These are your money values.
When you recognize your top money values, you’ll use these as a compass when it’s time to make hard decisions in your emergency plan. This will help you feel like you’re not compromising what’s most important to you.
Phase One: Determine Your Bottom Line Number
Your bottom line number is the 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.
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’re looking at our break-even point AND what you need personally.
You’ll identify your essential monthly business expenses and add that amount to your portion of essential monthly personal expenses. Then, to find your bottom number, you add those two numbers together.
Phase Two: Reduce Costs
This is where to get strategic about what costs you’ll reduce and at what point in time.
Begin by categorizing all your business and personal expenses into one of three categories:
- Essential expenses
- Convenience costs
- Unnecessary expenses.
Once you know what’s essential, and what’s not, you’ll group your expenses into cost-cutting rounds.
Next, decide when you’re going to cut each round of costs.
- Round 1: The first group of expenses that you’ll cut, which are the low impact expenses.
- Round 2: Your medium impact expenses.
- Round 3: Expenses you’re holding onto as long as possible to cut.
Finally, you’ll set financial indicators to determine at what point you would make these cuts. It’s important to know when you’re going to take these actions.
Learn the entire process for reducing your costs in my two and a half hour workshop Making Sure There’s Enough: Making a Financial Emergency Plan for Your Business.
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 about how each of these would 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 revenue streams that would the most impacted and estimate how much money you expect to lose in revenue. Knowing your historical numbers, as well as what exactly is impacting the income drop, will help you estimate your losses.
As you do this, 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 are no more costs you can cut or you’re no longer able to meet your bottom line, it’s time to seek financial support through loans, grants, and other fundraising options.
Federal small business loans 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 circ*mstances, but others are available year-round. There are also fundraising options like crowd-surfing campaigns, and friends and family loans.
Is your emergency financial plan in place?
