Summary: 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.
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 bank 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%, or 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 than you think it will.
Always keep in mind that Payroll is one of your biggest expenses and you might need to address it quicker than 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, and 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 team morale 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
- Lead
Business Owners Need to Take Care of Themselves 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 be 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, and 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 morale 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 than 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.
About the Guest Ron Saharyan
Ron is the co-founder 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.
About The Host Stephen Halasnik, Financing Solutions
Stephen Halasnik is the host of the popular, Entrepreneur MBA Podcast. The Entrepreneur MBA podcast’s purpose is to help small businesses get over the $10 million per year in revenue mark. Mr. Halasnik is the Co-founder and Managing Partner of Financing Solutions. Financing Solutions is a leading provider of Lines of Credit to small businesses and nonprofits
Mr. Halasnik is a graduate of Rutgers University and has an Executive Masters from the MIT Birthing of Giants Entrepreneurship program. Mr. Halasnik has started and built 6 companies over 25+ years with 2 of those businesses making the Inc 500/5000 fastest-growing list. Mr. Halasnik is a best-selling Amazon author on business and regularly tweets about his ideas about growing a business. You can also find Mr. Halasnik on youtube talking about Entrepreneurship.
Mr. Halasnik loves small businesses. He lives in New Jersey with his best friend, and his wife Gina. Mr. Halasnik’s number one purpose is raising his two boys, Michael and Maxwell, to be good men.
About Financing Solutions
Financing Solutions provides an easy-to-setup unsecured business line of credit to small businesses. The small business financing product is a great cash backup plan that costs nothing to set up, nothing until used, and is inexpensive when needed. Financing Solutions is rated A+ by the Better Business Bureau and 5 stars by the BBB/Google Reviews.
Unlike a traditional business bank loan, our business credit line requires no collateral or personal guarantee (except in cases of fraud) making it an excellent alternative business financing option. Small businesses often used their line of credit for short-term expenses, working capital, to make payroll, or for a business investment especially when business cash flow is temporarily down.
Get a free, no-obligation business line of credit quote by filling out our simple 2- minute business line of credit application here.
Remember: The time to set up a credit line is when you don’t need it.
Note: Financing Solutions donates 10% of its profits to various nonprofit charities
