Four Tips to Control Costs and Weather the COVID Storm
As someone who has been advising small businesses for more than 20 years, I thought I’d seen it all — until COVID-19 struck and even my most successful clients saw their revenue collapse. As I worked with them to chart a path forward, we identified four simple steps that will help any business control costs, reduce expenses and prepare for what comes next:
1. Solidify your bookkeeping: Many small business owners either don’t establish a bookkeeping system or don’t keep it up to date. If this sounds familiar, it’s time to get your books under control. (Don’t worry, you can make this easy by hiring someone to set up your bookkeeping — we’re happy to help.)
Having a solid bookkeeping system lets you pinpoint how you’re spending your money and how much people owe you. This gives you the foundation to evaluate each expense and understand how it affects your bottom line. It also means you can quickly figure out how much cash you actually have available to use vs. how much is technically in your bank account.
2. Find your break-even point: You’d surprised how many small business owners haven’t stopped to figure out exactly how much revenue they need to cover their expenses. This simple step gives you the context to understand how your business is doing right now, and how much you need to trim to stay afloat.
3. Evaluate each expense and decide what to cut: Once you have your bookkeeping system in place, you can view a line-by-line summary of every business expense. Start by dividing them into two buckets: necessary expenses and unnecessary expenses.
Phone and utilities? You’re not going to get far without those. But you’ll also quickly see things your business can live without. A lot of my clients have identified seemingly small expenses that add up fast — like office supplies, office equipment leases and even app subscriptions.
There are also ways to reduce the necessary expenses. Many landlords are suddenly open to negotiation, if you need to renegotiate the lease on your office or even on the apartment where you live and work. And some credit card companies are offering deferred payments or flexible payment plans.
4. Get ready for the next crisis: I know what you’re thinking: “I’ve barely wrapped my head around this crisis, there’s no way I can think about the next one!” But now is a great time to plan for rough weather, because you have an acute sense of what’s needed — and you might have a little extra time on your hands.
Work with your business advisor set a goal for your cash reserves (ideally six months of operating expenses) and to develop a savings plan to get there. Establish a line of credit so you have more resources to tap into. And take a moment to identify your core business values, so you have a compass to guide you the next time you’re faced with tough decisions.
Most of all, remember not to feel scared about diving into your books and expenses, or embarrassed that you didn’t do it earlier. Understanding your finances will help you feel liberated and reduce your stress, because you’ll know exactly where you stand and where you need to go.