What To Do Before and During a Recession With Your Business: Entrepreneur MBA Podcast 2.3
We are just two weeks into the coronavirus quarantine and business owners are just starting to come to grips with the idea that a major recession is coming. I asked Ron Saharyan to be on today’s Entrepreneur MBA podcast because his business methodology has always preached watching expenses. In addition, I personally have been through 2 recessions with two different businesses and I have first-hand experience with the issues surrounding a business and a business owner.
Ron is Cofounder and Managing Director of Profit First Professionals. Profit First is an international network of extraordinary accountants, bookkeepers and financial experts who are not only masters of their trade but have vast amounts of skills and experience in helping companies grow their bottom line using the Profit First method.
Profit First Methodology
In good times businesses typically focus on sales but Profit First changed that methodology and suggested that businesses should focus on profit by allocating money directly to separate banks accounts for various important business expenses and income categories. This methodology is like grandma’s secret envelopes stuffed with money for things like vacations, etc. The one thing about grandma was she certainly knew all her expenses and income. Plus she had a plan. Surviving a recession starts with being aware of what you are spending and projecting the next actions.
Reduce All Your Business and Personal Expenses Now
Look at all your expenses now and see what you can eliminate and reduce expenses now. What are your biggest expenses and what is your short- and long-term plan with them? Take time out of your day to plan various models of your business going down by 25%, 50%, 75%. The key is to be able to stay through a recession until things improve.
Mentally Prepare Yourself A Recession will last longer than you think
A recession often lasts a lot longer than people think it will. There is often an overall economic recession and sometimes, an industry-specific recession that lasts longer. It all comes down to the idea that you should plan for a downturn to last a lot longer then you think it will.
Always keep in mind that Payroll is one of your biggest expenses and you might need to address is quicker then you would like to save your company.
Plan now what you are going to do with your payroll now and if/when income starts declining. There are a lot of options such as furloughs, reduction of hours, cutting certain positions. It’s the hardest decision a business owner makes however your business is of no value to anyone if it is closed.
During Recessions, Business Owners Go Through Phases
- Deer in the headlight
- Gathering information
- Slow to reduce expenses
- Starting to plan but late to do so
- Looking for other ways to make money
- Your staff sees your emotions
- You start to let people go too late
What a Business Owner should do
- Get ahead of the game now
- Review cash flow, expenses, and income
- Take decisive action now. And you might have to again later.
- Talk to clients now about their business
- Be a leader in the office and keep your teams moral healthy
- Take good care of your own mental and physical health
- Start to plan for what you will do next
- Start to act like you want to take advantage of the market when things improve
- Stay busy and active in the office improving the company
Business Owners Need to Take Care of Yourself Now
The recession could take a long time to end so you need to be at your very best not just now but as the recession progresses. Your team expects you to be a leader and so taking care of yourself both mentally and physically should be your number one priority each day.
Talk to your clients
During a recession, don’t wait for your clients to stop ordering from you until you call them. Call them now and ask them about their business and what to expect. It will build a stronger relationship when it comes time for them to not only continue working with you but also when it comes time to being paid on time.
Have People You can talk to
Have a network of paid and not paid people/friends that are smart that can help you with new ideas or just the emotional part of running a business during tough times. Coaches, Accountants, other business owners, organizations, are all valuable resources. Talk to them often or start a zoom call with them every week or two.
Build your company now for when the recession changes
Keep your perspective because the economy is going to improve and you want to be able to take advantage of things when they improve. It also improves moral in the office when people are on a mission. Competitors are going to fall off and when they do, you want to be ready for their customers. Tell your team, we are going to build this company so we are better and so we can take advantage of things when this recession turns.
Your staff always believe that the owner makes a ton of money
Be a leader in the office. Be a steady hand. Tell your staff to watch their own money and reduce their expenses and let them know you are doing the same thing both personally and in the business. Bring your own lunch showing the team that you are cutting back along with them. It also lets your staff know that there might be some changes coming. Keep in mind too that during a recession, employees typically have a hard time finding other jobs so you may not lose people because they will want to stay put. It will also make your team more productive.
Review your cash flow, expenses and income statements now
Do you have 3 months of readily available cash to run operations? What are you, the owner, taking out of the business for your “personal expenses”. Restaurants, Subscriptions, Family cell phones, expensive cars. Be aware of those expenses and reduce them. Do it now. What’s the worst that can happen if the economy improves earlier then you think.
The key here is that you need to have a plan, work the plan, have measurements, be productive and take good care of yourself, both mentally and physically. You need to be at your best every single day until things improve. Business owners are incredibly resilient and highly motivated. This is the time to shine and to make your company better.