The ancient Greek philosopher Heraclitus said that change is the only certainty in life. 2,500 years later, his words still ring true. If you’re a small business owner, you probably know how stressful it is to face
Factors Beyond Your Control
As a business owner, you no doubt try to make informed decisions, especially with your enterprise’s finances. You don’t need me to tell you that even your most educated guesses can have unintended consequences, but they pale in comparison to factors entirely out of your control.
Three of the most powerful causes of uncertainty small businesses face are illness, economic conditions, and changes in consumer behavior. For most of 2020, all three have plagued small businesses around the world, and in ways that devastated the finances of many of them.
Serious flu seasons, Ebola outbreaks, and a COVID-19 pandemic can affect your business in various ways. It can range from a dip in productivity due to employees being on sick leave, to a few months of hard lockdown that can put your business on the precipice, if not push it over. A sluggish economy, recession, and a global downturn can lead to a loss of employees, a pause on hiring new workers, and cutting down on resources and expenses.
Various voices, management consultants McKinsey and Company among them, tout 2020 as the year that changed consumer behavior. Small businesses that were doing a roaring trade in 2019 found themselves selling to a fraction of their former clientele in 2020. This was because of massive shifts in consumer behavior brought on by a pandemic, and society’s response to it. There’s no way to predict these events, but that doesn’t mean you cannot prep your business’ finances for the uncertainties they bring.
How To Prep Finances For Uncertainty
The following steps are not exhaustive, but they offer a good foundation. Use them to put yourself on a path that may lead you to find additional methods tailor-made for your company.
1. Create An Inventory
When you draw up a shopping list, you probably take a moment to check your fridge, shelves, cupboards, and pantry. Noting what you’ve got can help you determine what you need to purchase at the store. Taking an inventory of your small business’ financial assets works much the same way. You can draw an inventory up and use it to create a basic net worth statement.
Check how much of that net worth is liquid and then compare that to the amount of money that ought to be in your business’ emergency fund. Explore ways to grow the emergency fund, even if it means investing less in growing your business. You can stop or taper contributions to the fund when you have reached your goal amount.
2. Stick To The Financial Plan
A financial plan is a roadmap to your small business financial goals, and it can help you stay focused, come fire or flood. Drawing up an annual, six-month, and even monthly financial plans should be part and parcel of running your business, and you should stick to those plans as much as possible.
Detours can and will happen, but your plan will ensure you find your way again.
3. Don’t Change Investments
If you have investment accounts for your small business, and the investment allocation was stress-tested to the uncertainties many of us faced in 2020, keep investing.
Don’t be tempted to change the investment allocation, or to stop contributing to the account unless it’s necessary. Changing the allocation and switching from equities to fixed income when the goal is in the distant future, or when the market is volatile can ultimately have a worse effect on your investments.
4. Review Your Expenses
You cannot control the factors that lead to uncertainty for small businesses, but you can control, at least partially, how you manage your cash flow and profits. Review all of your business’ expenses, note those that are necessities and those that are unnecessary.
Find ways of spending less on the necessities, if possible. You might not be able to do without cash register receipt paper, but there’s a chance you could find a cheaper supplier.
For expenses that are unnecessary, find cheaper options, cut down, or eliminate what you can. Divert the money you save to your business’ emergency fund or investment account.
5. Stay Up To Date
Staying up to date with world events and economic indicators is staying one step ahead.
World events and decisions made by the government affect the international and local economies, and you can find about those potential effects by staying informed about the latest economic forecasts. The information you glean can be useful when you review your financial and business plans.
6. Include Employees In Your Planning
The best way to plan for a time of uncertainty is to prepare for multiple outcomes. And the best way to do that is by involving your team in your planning. By involving your employees, you can get new perspectives that can lead to innovative changes in preparing your finances.
There were rumblings of a possible 2020 recession in 2019, but small business owners who planned for that, and only that, as the ‘most likely outcome’ were in for a nasty shock. Those who also planned for most of the year being disrupted by a pandemic of biblical proportions, and for dramatic changes in consumer behavior, would have been in a better position to face 2020—and I’m sure there weren’t many who had that kind of foresight.
Prepping for the unknown begins with a few small steps. The upshot is that it can put your business in a position where it can weather all sorts of storms.