Looking Ahead

Oh, how times have changed. COVID-19 has swept through businesses worldwide. Some companies have changed along with the climate; others have resisted the change and sadly perished.

According to MarketWatch, 55% of companies closed on Yelp have shut down for good during the pandemic. (1)

So, how do you manage to sustain your business operations with so much fluidity in the market? How do you manage your cash flow? Do you have the next year mapped out? Have you assessed your borrowing needs?

According to US Bank, 82% of business failures are due to issues with cash flow. (2)

How do you manage cash flow then, you ask? Great question! Below I give you two tools that are absolutely necessary for continuous financial management.

Filtering information by what's relevant is crucial in today's chaotic world. However, simply being informed is not going to control the chaos. You have to have tools in place to evaluate and assess your business needs with.

The first tool you need is a functioning and feasible budget in place. Why do I say feasible and functioning? Feasible because the budget must be achievable and practical; functioning - because having a budget in place is a continuous project. So let's define what a budget really is. A budget is a detailed framework for your business, based on short-term needs, usually reviewed and developed annually. Once you have this in place, managing your cash flow is much more realistic.

A budget is an instrument that will take your business to new heights, new profits. I work on this with my clients all the time, and believe me, creating a budget is much easier than you might think, and if you commit, I promise it will be worth it.

In the words of Martin Luther King Jr, "You don't have to see the whole staircase, just take the first step."

Your first area of focus is the framework. There are vital questions you must ask of yourself before you set this up. What is your intention? What is the purpose of a budget? Clearly state your goals. You may want to set this up to measure performance, or cut on your expenses, or simply because you are tired of micromanaging your business.

Next, I want you to look at the historical data by location and by the department. Break down those costs based on needs. Refer back to step 1. What is your goal? Do you want to slim your costs? Grow your sales? Control your spending within pre-approved parameters? Review your income statement, balance sheet, and cash flow. This is an excellent time to look at your inventory, are you going to need new equipment?

Next, and this is an important step. Reach out to department leads and management. They will have insight and perspectives that you failed to think of. Review collectively. What's going to change based on the information we have today? Consider different outcomes of your decisions.

And finally, based on your expenses, determine revenue needs. How much will you need to break even? How much in profit do you expect to collect? What are your goals? Is that sufficient? If not, you might want to develop new strategies for pulling in revenue. Remember, COVID-19 rocked our world, and you may need to deviate from your current operations to sustain your business model.

Once you finalize your budget, you will need to review it on a monthly or quarterly basis. You can also invite a professional to help you form new strategies for managing your cash flow and business operations. Look at your actuals versus your budget. You want to look at ratios and industry averages to determine if you are in a strong position within the continually evolving market.

And now, you are ready for tool number two. Forecasting.

Almost the same process. Look at the historical data and form predictions. You can use your budget, but keep it limited to a summary of your major accounts. Forecasts are used on a long term basis, three to five years. These are informed predictions based on your industry, financial position, and future goals.

The best part about forecasting is that it's a model. You can plug in whatever changes come your way, assuming you can monetize them and strategize based on the results. By looking to the future and plugging in relevant factors, you can position your business to thrive in any situation.

I suggest keeping these tools in your pocket as they help you navigate through this developing landscape.

As always, I am here to help.

If you send me a quick email, I can send you a budget and forecast checklists and update you on new and valuable information. Just tell me what challenges you are having with, and I'll be glad to help.

I hope you enjoyed this article, and thank you for subscribing.

#Costefficiency #Returns #FinancialManagement #CashFlow #Budget #Forecast

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1. Pesce, Nicole Lyn. “The Margin.” MarketWatch, MarketWatch, 22 July 2020, www.marketwatch.com/story/41-of-businesses-listed-on-yelp-have-closed-for-good-during-the-pandemic-2020-06-25.

2. Desjardins, Jeff. “Here's Why Small Businesses Fail.” Business Insider, Business Insider, 2 Aug. 2017, www.businessinsider.com/why-small-businesses-fail-infographic-2017-8.

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