Recessions are like forest fires. At face value they seem devastating. The fire though, creates incredibly fertile soil and access to sunlight that was previously blocked. This creates a great environment for new plant life to flourish. But ecology lessons aside, recessions act in much the same way. The environment created by recessions is ideal for new ideas to take hold. During the last recession was when several technology powerhouses emerged. Just to name a few, Uber, Instagram, Groupon, Pinterest, Slack all started. Some of the most Iconic companies today like Microsoft, GE, Hyatt, GM were started in a recession. Not to mention Disney which was started during the granddaddy of all of them – the Great Depression.
Q1 2020 hedge fund letters, conferences and more
You see that there can be bright sides to recession but we need to be around to take advantage of it right? So that makes cash flow Queen. I am sharing 10 things we can do right now to not only understand our cash flow but also to create more cash flow and position us to come out on top in our professional and personal lives.
Business or Personal Stress Test
You can do this in your business and personal life. We’ll analyze the state of your business and show what you need to give it a stress test. To do this, make a list with two columns. In the first column, you will need to list all of the income that you have coming in every month. In the second column, you will need to list all of your expenses for a month. Now add up both columns and subtract the numbers.
If the difference between your recurring revenue and your expenses is positive, you know you can continue to run your business with the amount of revenue coming in. In other words, this means you have more recurring revenue than expenses, and you will be able to meet all of your bills.
If the number is negative, that’s the gap that you have to fill every month. Let’s say that you have a gap of $500 each month that your recurring revenue is unable to cover. You have a few options. You may cut your expenses, get a loan, find more business or you may even have cash in the bank that you can pull out to help cover the gap. Say you have $5000 in the bank, you know you have 10 months of leeway if nothing changes. This is even if you don’t get any new business, but your goal is to get new business and for each month new business is brought in the gap lowers.
Knowing these numbers makes the future less unknown and as a result less stressful because you know where you stand and what you need to do.
Kill Some Expenses
One of the main ways to save money is to not spend it. Again this process can, and should be, applied to your business and personal life. You want to start by taking a look at all your monthly expenses. Write them out on a sheet of paper (if you did the stress test you should have it done already).
Now we can find several ways to save money. Let’s start with your personal expenses. Create two columns. The first would be payments you have to make every month ie. car loan, student loans, mortgage/rent, paying off a balance on a credit card, utilities, etc. Next, we look at your take home pay for one month. When you look at your take home pay versus column one most often you see a large positive difference.
Meaning you make more than your monthly payments. Most people don’t believe this and go back and recheck the numbers. How can you be bringing in so much more than you spend on your major bills?? This where column two comes in. Here you put everything else you spend money on.
Your big one here would be food. When you write out column two, you can see how you nickel and dime yourself into not having anything left for savings or big purchases. For example you might notice you spend $4 a day on coffee. At face value that is not a lot, but it’s $120 a month and $1,440 a year.
Or maybe you notice you go out to eat a lot and spend $600 a month in fancy restaurants and takeout. We all need to eat and coffee is life but there are less expensive options to get our food and caffeine
You can do the same thing with your business. I have coached many people through this drill and on average they save a lot of money. You may find that you have a few software services as a service(SaaS) you signed up for but you never use. Who hasn’t said it's only $20 month and it's shiny and new!
No matter the potential they had when you bought them you never ended up implementing them in your business. Those are prime candidates to cancel and immediately lower your expenses. The next way is to look at the purpose of each SaaS you have.
Let’s say you have three great SaaS that each do a really great job at one thing. But one of those products is great at one task but will do an acceptable job at all three. In this case, you can cancel the other two SaaS and use the one to do all three jobs. In situations where you need to watch your expenses, rely on the one that does all three of the jobs you need to do even though there are better products out there for two of them.
Prioritize Expenses
You have done a quick audit of your business cash flow and know if you are going to run out of cash. In this situation prioritize your expenses so you know which ones you could put off for a little bit and which ones you’re gonna have to pay immediately. You know which expenses are the most important to pay and which are the ones with some wiggle room. For example, if you have a loan or a credit card, you know that if you miss a payment you’ll be charged a late fee, your interest rate will skyrocket and it will damage your credit report.
In this case, you need to make this payment an absolute priority. Now let’s look at your electricity bill. You miss a payment, you may get a slight late fee but they are not going to turn off your electric bill for a while — it will take many missed payments before that happens. You know that you have some room to make a payment later without any devastating and long term effects so this could be a lower priority.
Our goal is to never have to be in a situation like this but this crisis has shown us that things happen that we can’t predict. This is not an ideal way of managing money nor a long term fix, but we’re looking at the worst-case so we have a plan in place. Having a plan in place makes us feel better. It also helps us to have less stress over what could potentially happen because we have given it thought and prepared it for.
Understand Cash Flow
You need to understand how money is flowing in and out of your personal and business life. Knowing when you have money coming in and when money is going out will give you more clarity and allow you to make better decisions. Write a list of all your expenses(you should have this if you’ve done the exercises above) with a date they are due in one column and then write a list of the when you expect to receive recurring, hourly, project fees any time of payments from clients.
The key here is including the date and ordering expenses and incoming cash by that date. For example, you will know that you have a $500 payment going out on a certain date and you whether you will or won’t have the cash to cover it. Knowing this gives you the flexibility to solve the problem in a few ways. The first way is if you are working on a project that will be paid for upon completion.
Since that money could be used to pay the bill you have coming due you can prioritize that project is finished before the due date so you have the money. Another way is if you know that a certain customer is very slow-paying, you can bill him early so that we’re sure to get the money in. You can also offer a flash sale to generate quick revenue. All else fails you can go back to the prioritized expenses list you created and make decisions from there.
Understanding your cash flow is one of the biggest ways to get control of your businesses. It not only can help you find potential blind spots but it helps you decrease stress and make better decisions. Because having the information to make informed decisions is a key way to keep your business moving in the right direction.
Refinance and Negotiate
Another thing you can do right now is to refinance and/or negotiate your current bills to help save money. Call your providers (anybody from your internet service provider, to your insurance company, and loan companies) and see if they have some kind of relief or switch providers to take advantage of a promotion that they are offering. Adobe, for example, will give you three months free if you call them.
If you have federal student loans most likely your payments are automatically suspended till September. If it’s a federal loan that doesn’t qualify, you can try to get a forbearance, which suspends the payment, but not the interest or a deferment. And if your payment is suspended and you can still afford to make the payment you should. The whole payment in this situation would go to paying off the loan balance instead dividing it between interest and the loan balance.
Interest rates are very low right now so you can also refinance your student loans. It’s not all or nothing deal either so if you have some high-interest rate student loans this could be an excellent opportunity to lower those rates. Caveat here is if you're going for loan forgiveness you want to be sure refinancing doesn't reset the clock on the number of payments that need to be made. You can also look into refinancing your house. Although you’ll need excellent credit to take advantage of this option as the qualifications have tightened dramatically.
Save Money on Future Purchases
You could save money on purchases you’re going to make in the future. For example, if a new car is in your plans, right now is an excellent time to buy a car. Interest rates are really low. Car dealers need to make sales. Because of the excellent prices on cars and financing right now it provides a great opportunity to save money even if you weren’t planning on buying so soon.
If you fly a lot and you have credit card miles, you could transfer these miles to airlines to redeem in the future for free airline tickets. Right now, some airlines are giving big bonuses for you to transfer miles in. American Airlines, for example, will give you a 40% bonus for transferring miles in. So if you transfer 10,000 miles in, you get 14,000 miles. Doing this will reduce the future costs of airline travel.
Many companies out there need to sell products to keep their cash flow going. So they’re going to be really aggressive pricing on their products right now. If you have the ability and you know you’re going to be spending the money anyway, this could be a good time to buy so you free up future cash flow.
Acquire a New Skill
This is an excellent time to see a need that has been created and to jump on learning how to fill that need. Or is there a new skill that you have been wanting to learn but have not had the time. Right now, many online courses from good quality companies are free or highly reduced.
Create Content
Another thing that you could do in your business is create content to position yourself as an authority. We all have heard content is king. The problem is you’re normally so busy working on your business and taking care of personal obligations you don’t have the time to create the content. This is your opportunity to build an Instagram following, start a blog, create content for your Facebook Group, begin a podcast. You can create 5–6 months of content right now to better position yourself in your potential clients mind.
If you are viewed as an expert, you’re able to gain clients and followers and more easily raise prices. People always are willing to pay more from someone who is an expert. And then your business becomes more insulated from these types of events.
Become Indispensable
Become indispensable to your existing clients. Make yourself into a person who is counted on and can’t be lived without. Offer more value to your clients for what they are already paying; you can offer strategy sessions, consulting, and increase what they are receiving. For example, I have a client who gave 25% more retainer hours to her clients. She was scared these events were going to cause her to lose several clients. This cemented her as a trusted advisor who cared about her clients and her company has taken off.
Have Conversations
This last tip is the scariest one because we fear if we talk to your clients it gives them the opportunity to cancel. Sure it could happen and one or two may leave. This will allow you to learn their fears, needs, wants, and pick up on industry trends so that you can improve your current services or create new offerings. In the dozen or so interviews I’ve done with business owners that have lived through previous recessions and come out ahead, this was one of their main strategies.
So there you have ten actionable ideas to be sure you keep your head above water and make the most of the opportunities this recession provides.
About The Author
Nev Harris is an agency owner who teaches people how to understand their money and how to use it as a tool to grow their business. He is a graduate of the University of Pittsburgh and Duquesne University, with a Bachelor's in Economics and an MBA in Finance.
Money talk doesn’t need to be scary. Or boring. Or something you do behind closed doors with an accountant who appears to be speaking another language.
Nev is all about helping Agency Owners, Small Business Owners, and Freelancers make sense of their financial statements, get over the fear of having a good, hard look at the financial health of their business, and learn the language to empower them to make better decisions.
