How Not To Panic When News About the Economy is Bad
The sky is falling! The sky is falling!
For two straight years, we’ve woken up every day wondering what part of the sky would fall down next. The sudden onset of the coronavirus pandemic sent everyone reeling - from every individual up to the CEOs of major corporations. Bad news has come at us every day and on multiple fronts.
So what should you, as a small business owner, do? How do you react to bad news in the economy? How do you keep your small business afloat when the entire ocean is on fire?
Here are three quick suggestions for riding out the waves.
Get your books up to date.
Once you have all of your monthly transactions entered, all bank and credit card accounts reconciled, and you’ve looked at your monthly financial statements, you will know where your business stands financially. You’ll know how much money you have in the bank. You’ll know what your profit (or loss) for the month is. You’ll also know what your expenses are. While the news might report that some businesses are experiencing reduced sales or increased costs, you’ll know 100% if your business is one of them. If it isn’t, then you can ignore that piece of the news. If it is, keeping track of your monthly revenue and expenses means you already know about this and the news isn’t really news.
Do a business budget
After you have several months’ worth of data on your Profit & Loss statement (P&L), you can use that information to create a monthly budget for your business. A budget is simply your best guess as to what amount of revenue and what expenses your business will have next month. Having a budget allows you to PLAN for the future. You get to be proactive rather than reactive. For example, if you know the cost of one of your key ingredients is going up (because you pay attention to industry trends rather than finding out through the News app on your phone), you’ll know to budget MORE for that ingredient and LESS for something else. This helps to keep your cash flow positive so you don’t run out of money.
Be careful about debt
If you’ve followed me any length of time, you’ll know that I’m not a big fan of taking out loans or using credit cards. While I won’t be mad at you for taking out a loan or refuse to take you on as a client if you have debt, I do want to warn you that having debt is like playing with fire. When news about the economy is bad, it isn’t necessarily all hype. Sometimes things really are bad. The absolute last thing you want to do during a downturn is to take on more debt. If there is a chance your revenue could drop or your expenses could increase, you’ll have less cash to put towards your debt payments. So taking out more debt will only exacerbate the crisis.
If you have your bookkeeping up to date, know what your budget is, and have little to no debt, your business will be in a great position to potentially ride out any waves the economy can throw at you. You’ll sleep better at night and be ready for the next wave to hit. If you’d like to experience this peace and freedom from worry, give me a call.