Recommended Reads | By Leah Collins | Read time minutes
The forces behind a financial crisis are so overwhelming that, unless you take radical and timely actions, your financial condition worsens by the day until you eventually close your business.
Managing a business through a financial crisis, internal or external, always feels like a never-ending nightmare. But then, business success comes from resilience and dedication to the cause, even with the nightmare looming over your head. Instead of giving up, you need to develop a strategy for managing your finances through the crisis.
So, amid the ongoing COVID-19 crisis, do you have a strategy for riding out this storm? If you don't have one, don't panic! This article explores five tips for effective business finance management amid a crisis.
1. Acknowledge the Crisis and Readjust Accordingly
Most businesses that collapse during financial crises are the ones that pretend to be unshaken and unaffected. So, please, don't be an ostrich! You should assess how bad your current situation is and then make necessary adjustments. Let data - not your gut feeling - serve as your guide in every decision you make. Through understanding and acknowledging where your business stands now, you can plan your way out of your predicament.
Guided by data, make some of these readjustments:
- Financial Goals, Both Long-term and Short-term
- There are goals you might need to shelve, and new ones you might need to introduce. When push comes to shove, you may even have to discard some goals. But before you take any actions, you have first to organise these goals in terms of priority and viability. There is no point in starting a priority project and then getting stuck mid-way.
- Don't overlook any silver linings while reimagining your goals. For example, many businesses capitalised on the online shopping trend that COVID precipitated to launch their eCommerce platforms and doorstep delivery services. Be on the lookout for such silver linings because they can be your unlikely lifeline.
- Communicate directly, authentically, empathetically, and clearly with your clients and employees. You will be bearing a lot of bad news during the crisis, so this is the time to be brutally honest and transparent in your communication.
- Again, don't be an ostrich. If you need to dismiss some employees or discontinue some services for business survival, be honest and candid about it.
- Your Relationship With Lenders and Investors
- You need to be as close to your lenders and investors as possible at this time. Keep them updated as your business's financial position changes. If you need to renegotiate loan repayment terms, don't hesitate to talk to your bank or investors. Financiers hate surprises - who does when it comes to money?
- Relief Application
- Have you ever applied for relief? There are many low-interest loans and relief funds that your government offers businesses during economic downturns. Small Business Administration (SBA) and Economic Injury Disaster Loans are two examples of the loans for which American businesses can apply. If you have never applied for relief before, now would be an excellent time to reconsider your stand.
- Your Life
- Business owners and managers take the most heat when businesses fall into financial crises. If you are a business leader, don't pretend to be okay if you are not. Take care of yourself. Manage your stress. Rest and recharge regularly. Work out more. Cultivate a healthy work-life balance. Spend quality time with your family. You want any unforeseen financial turbulence to find you in a tippy-top shape.
- Client Management
- Your clients are your most important asset, especially when dealing with financial problems. Double down on your efforts to make their lives comfortable. Tailor your services to their convenience, e.g. introduce at-home delivery services during the COVID-19 crisis. Your client base is the institution that will get your financial health back in shape.
- Your Staff Management
- How do you challenge, inspire, and motivate your team to work hard? You have to ensure that the employees understand how bad your business's financial health is and their role in getting it back on track. Help them realign their priorities. Empower them to become more effective and efficient. Make them feel valued. Give them a lot of favours to put them in your debt, a debt you can always cash in when inconvenienced by insufficient funds. It would help if you doubled down on that too.
2. Tighten Your Budget and Cash Flow Management Routine
This area is another readjustment you need to make, but we put it as an independent point because it is more crucial. Unless external forces, e.g. a pandemic, caused your financial problems, there is a high chance that cash mismanagement and unhealthy budgeting are the reasons your business is on the rocks. You have to reimagine your budgeting and develop an air-tight cash management strategy. Among other things:
- Monitor Your Business Cash Flow
- How much money does your business generate in a day? What could be hampering your cash flow? Are there expenses you can cut without hurting your profitability? Which are the departments or business units with the highest losses or profits?
- Bottom line: Put your house in order to ensure that all cash management loopholes are sealed and that your profits are optimised.
- Tighten Your Budget
- How well do you manage your clients' invoices? Do you send invoices early enough? Do you send enough payment reminders to customers? If you give clients discounts and other incentives for early repayment, could that shorten the repayment period? Find answers to these questions through deliberate research and data analysis.
- Rethink your wage bill. Is it sustainable in the long run? Are there redundant employees that you need to let go of? Can you find cheaper labour out there without jeopardising your business efficiency?
- What about your taxes? Taxes can weigh you down in a big way during a financial crisis. Talk to a financial expert regarding the tax relief you qualify for and other ways you could cut down on taxes.
- What about your inventory? Is it optimised for the prevailing market needs? How aligned is it to your available working capital? Which products/services can be reduced, rationalised, or even cancelled for better profits?
- And then the utilities. Is it possible to renegotiate rent, especially when COVID has paralysed the global economy? Or, is there any unused space in your premises that you can sub-let? What about telephone use, transport expenses, and energy consumption - are you overspending on any of these?
- Are your suppliers giving you the best prices in the market? Shop around for better deals or renegotiate with your existing suppliers for better prices and credit terms.
- Get more out of your equipment. Replace any faulty or outdated equipment - such equipment only wastes your space and slows you down. Although the upfront cost of new equipment is high, you will save a lot with regard to space, time, energy consumption, and wage bill upon investing in a piece of more efficient equipment.
- Only allocate budgets to areas that directly improve your business profitability. Before paying for a booth in a trade fair or hosting an expensive marketing event, consider your chances of profiting from them in the short term.
3. Outsource More
For starters, outsourcing saves you money on staff. It gives you access to trained professionals without burdening you with huge wages, gratuity benefits, retraining, and insurance. You only pay for the services you need when you need them. Most importantly, outsourcing allows you to pay as you go, a step at a time.
If, for example, you intend to expand to a new market, you can hire a freelancer to carry out your market research for you. If you are impressed with the findings, you can outsource sales reps to the new market. If you are happy with the returns, you can outsource production to a local manufacturer, and so on. That allows you to test new projects gradually without overstretching your resources initially. As a result, you can discontinue your investment at any investment stage without counting huge losses, if at all. Outsourcing also frees up time for you to focus on more business-critical tasks. Instead of wasting time on social media management, you can outsource that task to freelancers. Time saved is like revenue earned.
When expanding to new markets during a financial crisis, outsourcing HR services to an Employer of Record (EOR) will save you money. Hiring and managing employees in a foreign labour market can be tedious, slow, and costly. You might have to open a local entity for a foreign government to give you access to the local labour market. With an EOR, you won't need to worry about opening a local entity or anything to do with payroll management, taxes, or compliance with local laws. EOR will do all that for you. The EOR will even ensure that your foreign employees are paid through their local banks and their local currency. Your chances for success are much increased as a result.
4. Rethink Your Sales Management
Maybe your business is in a crisis because your sales strategies are outdated or ineffective. Now is the time to figure out what you need to fix, improve, or change in your current strategies to boost sales and increase revenue. Ensure that, among other things:
- Your marketing messages appeal to qualified prospects. Don't just design marketing materials and distribute them all over. That is a waste of money and time. You need to take your time to go through market analyses and see which marketing methods work and which ones don't. Before you invest in a marketing campaign, conduct surveys to establish which platforms your prospective customers are on and which marketing tone resonates with them.
- Your stock management is on point. Minimise the money you have tied up in stock by selling the dead stock at discounted prices. Deadstock can be quite expensive in terms of storage and insurance, on top of the fact that it is fundamentally cash sitting idle on the shelves.
- Your pricing is right. Know the worth of your services or products and price them appropriately. Ensure that your prices aren't too high or too low. If your existing market can't afford your prices, maybe it is because your standards and quality are too high for them. Is it time you considered lowering the quality of your products?
5. Make Technology Your Friend
Technology allows us to save and earn money in many ways. You can, for example, invest in:
- An online shop fully integrated with online payment gateways. That opens up your business to more customers. That means more revenue.
- Paperless technology, e.g. replacing paper invoices with digital invoices. That eliminates ink, mailing supplies, and postage expenses.
- Internet marketing. Marketing on social media, for example, is effective both in cost and results.
- Digital communication tools. Instead of holding in-person marketing events, you can cut costs by over 95 per cent using teleconferencing platforms. You will also save a lot by opting for e-learning instead of in-person employee training.
- File-sharing platforms. Digital secure file-sharing allows departments and teams to collaborate seamlessly, even when some employees work from home. The platforms enhance the security and accuracy of data, eliminating the need for expensive data security mechanisms.
Your business will be in a much better financial position if you acknowledge that you are in a crisis, make adjustments to your cash flow management, tighten your budget, outsource more, and reimagine your sales management. More importantly, make technology your friend because tech-based business management solutions are way more affordable than traditional, manual methods.
What tips do you have for managing business during a financial crisis?
Leah Collins is a business development manager who appreciates exploring her career. Collins enjoys reading, writing, and listening to music when not working.
Recommended read: 7 Tips on How to be a Great Leader During a Crisis, by Eileen Burton.