Transcript Episode 81

Episode 81: How to Recession Proof Your Business

Transcript Episode 81

E81 – How to Recession Proof Your Business

[00:00:00] Welcome to the 100 degrees of entrepreneurship podcast. The show for purpose driven entrepreneurs who wanna get inspired to step outside of your comfort zone, expand it to your purpose and grow your business in a big way. I’m your host, Stephanie, Kowski a globe TRO CFO, whose mission is to empower leaders to better understand their numbers, to grow their impact and their income.

Let’s dive in.

Hey everybody, Stephanie here. Welcome back to 100 degrees of entrepreneurship. I hope that you’re having a great week or a great start to your week since these episodes drop on Monday morning. If you’re listening to it Monday morning, I hope you are ready for a great week. So what I’m talking about today is how to recession proof, your business finances.

So. If you are paying at like even the slights bit of attention to what’s going on in the world right now, you have probably heard the [00:01:00] word recession dropped. Now I’m not going to pretend to be an economist and predict what the economy’s gonna do when we’re gonna hit a recession. If we’re gonna hit a recession, all I’m doing is giving you some tips to.

Recession proof your business. If that is something that is on the horizon for us, I don’t know, but these are all really best practices that you can use. No matter if we are potentially going into a recession or not. And so I know that there is a lot of fear language around going into a potential recession and what that might mean for your business.

And so I think everything that I’m gonna talk about today, I’ve got six different tips for you to recession proof, your business finances. And each of these are like best practices, regardless of what. Is going on in the economy. Right? So if you are consistently doing these things that we’re talking about here, you’re gonna be good.

Like you’re gonna be all set, whether we’re in a recession or whether we’re in like a super high period. So [00:02:00] these are just some best practices that I wanna share with you today. So. The first one is, I want you to include finances in your strategic plan, and this is all about setting your intentions, right?

So if you’re a nonprofit organization, if you’re a small business, if you’re a medium sized business, if you have a team of two, if you have a team of 50, you probably have some sort of strategic plan for the future of your business, right? So maybe for you, that’s a set of like five or six goals that you have.

Maybe, you know, if you’re a larger business, larger organization, maybe you have a really formal, strategic planning process, whatever that looks like for you. Finances needs to be a part of it. You need to think of finances or finance as a department in your business. Right? So even if it’s just you, even if you are a freelancer or a solo entrepreneur, You have a finance department right now, you’re the leader of that finance department.

So it’s a department of one and you may also be the leader of the [00:03:00] marketing department and the sales department and the program department. Like you may be doing all the things, right. But you still have a finance department. So you need to include finances in your strategic plan. This is really going to set your intentions and help you focus more on making your finances a priority, right.

To help you recession proof your business. So I was recently at a team retreat for one of my clients. They invited me to join their team. And it was awesome. And we talked about their strategic plan a little bit, and they have a whole section in their strategic plan dedicated to their finances. And so some of the things that were included in there were, um, maintaining a specific cash reserve, right.

They want to have a four month cash reserve on hand. And so that is part of their strategic plan. So that’s something really tangible that they can continue working towards that is going to help. Get through any potential downturn in the economy or [00:04:00] recession. They also broke that out even further and had specific numeric goals for their revenue streams.

Like not more than 30% of their revenue coming from one particular source. And they wanted to make sure that. Systems meet certain standards. Right? So all of this is included in their strategic plan. So think about that for your own business. Think about what that means to you. Like how many months of a reserve do you have in the bank right now, if it’s not very much, we’re gonna talk about cash in, in a couple minutes, but if it’s not very much think about what a good goal would be and put that into your strategic plan, right?

Think about, um, where your revenue is coming from. We’ve talked about metrics a lot. And I talk about metrics a lot with my clients. Um, so that we’ve probably got lots of content on that. I’ll have to give you an episode number, but if you think about if you know your numbers, if you know, like, okay, about [00:05:00] 60% of my revenue comes from this one particular revenue stream, maybe that’s something that you wanna think about and you want to set a goal to have no more than 50% come from any one particular source.

Right. So, so including your finance. In your strategic plan is going to allow you to set some goals, set your intentions, and really have something to work towards because I think we all know I’ve said this a million times before a goal without a plan is just a wish, right? So if we have these goals, we need to have a plan on how to get there.

And if our goal is to make it through any type of downturn in the economy and come out the other side with a business that is stronger than ever setting your intentions and your goals up front is number. Okay, so include finances in your strategic plan. The second piece, um, the second thing to help recession improve your business finances is to be very aware of cash.

So we all know cash is king, right? You can’t do anything in your business if you don’t have [00:06:00] any money in the bank. So building your cash balance today is very, very important. No, I am not. A proponent of like hoarding your money, right? I’m not saying that, oh my gosh, somebody dropped the R word, the recession word.

And so now we all need to just hoard our cash and not spend any money. I’m not saying that at all, but what I am saying is I want you to get that goal bank balance number. In your mind. And so let’s just say it’s $20,000. You wanna have $20,000 in a savings account. Great. Maybe you only have $6,000 in that savings account right now.

Okay. That’s fine. So we have a gap of $14,000 that we need to fill. Well, let’s look at our finances and figure out, okay, how are we gonna get from 6,000 now to 20,000? Um, and so make a plan, right? Well, that’s a difference of 14 grand. Maybe you can put $2,000 a month. Move that from your checking account into your savings account.

Every month [00:07:00] for the next seven months, right. That is a great goal. So really just determining how much money you wanna have in your savings account, how much is gonna make you sleep better at night and start, you know, coming up with a plan, do the math to get that amount in your bank account. So for me, I wanted to be able to make, um, have two months of operating expenses, including payroll in my bank account at all times.

And I think that this really depends based on industry as well. So for my business, we have. Clients lots and lots and lots of different clients that pay us. Right? So the likelihood of all of our clients going away tomorrow is very, very slim, right? Maybe a couple would drop off. Maybe a few would drop off, but I know what levers I can pull in my business to adjust accordingly.

However, if your business is, um, you know, maybe you have a course funnel and it’s entirely dependent at this point on Facebook ads and you [00:08:00] don’t really have a whole lot of money coming in through any organic channels while we all know if Facebook changes our algorithm or changes the back end of their software and their business, your business is going to be really strongly impacted.

And so you may want to have a higher. Cash reserve in your bank account so that you can weather a storm. That might be a bit of a bigger storm, right? So really planning for cash right now. And again, I am not telling you to not spend another dime because we’re, we’re scared, right? That’s not what we wanna do.

I want you to be proactive rather than reactive. So the second thing to recession proof your business finances is to build a cash reserve. So the third thing. I want you to get everything caught up and get processes in place. And so if you are sitting on six months, eight months, 12 months of backed up bookkeeping, get your stuff together.

Now, get [00:09:00] everything caught up, get processes in place. So you can stay caught up on your reconciliations and looking at your financial reports and. The question is why, like, why, why do this, why does it matter? Well, you don’t know what opportunities, um, or what is going to come across your plate. Right? So we learned, we found out, you know, in March of 2020, when COVID really first hit and everything shut down very quickly thereafter, the government released the cares act, which included the paycheck protection program.

P P P. We’ve all heard of BPP at this point, right? Where it was basically free money for small businesses, for nonprofit organizations to help you weather the storm of COVID and the organizations and the businesses that had their finances together that had a clear, um, you know, sort of clear documentation on their salaries and how much they are paying their contractors.

They were able to submit their applications faster and get [00:10:00] money in the. Faster to help them weather that COVID storm. Right. And so, because they had their act together, they were able to move quickly. We don’t know what’s gonna happen in the future. Right. But we do know that there’s going to be something, some opportunity, whether it’s related to a recession or not, there’s gonna be some opportunity.

That’s gonna cross your path that you’re gonna wanna have your numbers together, organize clean so that you can literally click a couple buttons and be able to jump. Right. So again, we don’t know what that’s gonna be. I’m hoping that it’s. You know, government relief money because we’re in a major recession.

Like let’s hope that’s not the situation, but if it is you wanna be ready. Um, maybe it’s just an opportunity you have, um, somebody come across your path that wants to be part of your business in some way. Or maybe you find a really cool opportunity that you wanna jump on. Um, getting everything caught.

Having the right processes in place is essential now, so that you are ready again. We are all about being proactive instead of reactive. The [00:11:00] last thing that you wanna do is miss out on some type of funding opportunity or, you know, just an exciting opportunity for your business because you are working around the clock.

Trying to get your bookkeeping done. Right? So getting everything caught up now is very important. So that’s number three.

Hey friends, are you feeling stuck with what to do next to manage the money in your business? Maybe you’ve logged into QuickBooks once or twice, but got instantly overwhelmed. Maybe you started to set revenue goals, but don’t know where to go from here. Maybe you simply know that managing your numbers is the right thing to do, but you don’t know what that actually means.

I’ve got you covered. I have a brand new 10 step checklist to manage your business like a CFO without making it your full-time job. Head over to 100 degrees To get the free checklist.

Number four, be proactive about your revenue [00:12:00] streams. So. I talked a little bit about this when I was talking a few minutes ago about including finance in your strategic plan, but being really proactive about your future revenue. And so not dropping the ball on marketing and on your pipeline for future revenue.

Maybe you’ve got a lot of business right now. And so you’ve kind of just put. Marketing and sales on the back burner. Now it’s not really time to do that. Right. We wanna be proactive about keeping a really hot pipeline of incoming revenue coming. And maybe that’s if you work with clients, um, maybe that’s a wait list.

If you can’t handle current business. Well, you can still build a wait list. And so when it’s time, you’ve got a whole list of people that are already willing, excited to work with you. Um, or maybe that’s really building out or developing, or even. Brainstorming new revenue streams. If you’ve got, say 60% of your revenue coming in from one source right now.

Okay. Well, how can we diversify that? Let’s [00:13:00] think about that right now. Again, being proactive rather than being reactive. If one of those revenue streams is impacted in some way by a recession or something else. This is all about being proactive. So thinking about what your future revenue streams might look like as for me, I am always doing this.

So you all know by now the bread and butter of 100 degrees consulting is our clients, our CFO, and our bookkeeping clients. We provide. Direct services to, um, to nonprofit organizations and to businesses where we do your bookkeeping work and we serve as your CFO. So we have very like one-on-one direct work, but I’m always brainstorming.

Future revenue streams, not just because of a recession, but like how are other ways that we can bring revenue into our business that maybe are not reliant upon just doing one-on-one services for other organizations. So being proactive, thinking [00:14:00] about future revenue streams now is super important to not only recession proof, your business finances, but also to just make you a more sustainable business.

Right. So thinking about how you’re gonna bring money in, in the future. So that’s number. Number five is managing your expenses now. So I am never a proponent of like slashing expenses just for the sake of slashing expenses. Right. We don’t need to operate on a shoestring. Like we are living in a world of abundance.

There is plenty more where that came from, and we should make sure that we have the resources that we need to do our jobs well. So that does not mean slashing every expense and just, you know, trying to get by spending the least amount of money. However, however, we may have some expenses that are hanging out in our business that are really not necessary.

I have joined memberships. I have bought courses. I have signed up for software because it [00:15:00] looks fun and flashy and I wanna try it. And then I forget about them. Right. I don’t use them. They’re not really what I needed after all. So manage your expenses. Now get rid of those things. You know what, you’re probably gonna find money that you can then put over into your savings account to build your cash reserve.

Right? So like you’re kind of checking two of the boxes with that. So really managing your expenses now. Analyzing whether or not your, maybe your team has a strong ROI. Maybe you have too many people on your team. I’ve definitely worked with organizations before where it’s almost like shiny object syndrome, but with people, you know, you meet somebody.

Awesome. Who is really, really talented. And you’re like, oh my gosh, I want this person on my team. So you hire them either as an employee or a contractor, then you’re like, wait a second. Is this really what my business needs? It’s kind of, it’s kind of not right. And so I’ve done that before I, or I’ve hired, you know, amazing people, but just into the wrong roles I wanted to.

Sort of find a place for [00:16:00] them because I liked them, but what the business really needed was not what they could provide. Right. I think we’ve probably all been there. Or maybe not. Maybe I just like everybody that I wanna work with everyone. So anyway, managing your expenses now. So whether it means, you know, adjusting things on your team or cutting out some of those unused expenses.

Are just not really working for you or you’re not using, um, manage your expenses. Now there’s no reason to wait again until you feel like your business is in dire straights, to be able to change things up. So do it now, again, proactive versus reactive, my friend. And like I said, managing your expenses now is gonna free up some of your cash.

Some of your capital that you can then push into either. More revenue generating activities or into your cash reserve. And the last thing, number six, um, really. Look at the relationships that you have both [00:17:00] with your vendors. So anyone that you are paying, whether it’s contractors or software, or I don’t know, maybe you run events.

And so you have contracts with specific vendors that, um, provide services or products for those events. So really, um, looking at the relationships that you have with them. And understanding your contracts with them. So what clauses are in there that allow you to back out of a contract? What might you owe them?

If you were to back out of a contract, what are the terms of this contract? Do you have to pay, you know, is it net 30? Is it net 60? What timing does cash need to leave your bank account once you have committed to them? So I’m not saying that you need to necessarily change anything, right? You may have already signed something.

And so none of what I’m saying right now is necessarily good or bad, but just understanding what is in that contract. So again, if you did have to make some quick moves, [00:18:00] what flexibility, what options do you have and then building that relationship with them too? Um, sometimes I feel like we forget that there’s people behind.

Every single thing that we do in our business, there is people, there is a human being behind a contract, and sometimes we’re just moving forward so quickly. And we just wanna be so efficient that we kind of forget about that. And so building relationships with your vendors is a really, really helpful, not only just to, you know, Get to know the person behind the business, but if something does happen, if you know, if everything hits the fan and you need to make changes to the contract, or you need some flexibility in payment terms, like you have already built that relationship and that trust up with that vendor.

And so there may be a little bit more flexibility for you there. Um, same thing with your, with your clients or students or whoever is paying you money. Again, look at your own contracts and see [00:19:00] what is in there. What are the payment terms that you have included in your contract? If you have, you know, grabbed a contract off the internet and just copied and pasted, and now you’re using that as your contract.

Did you really read it? Like make sure you understand what terms are in there, especially when it comes to people paying you money. Like, are you giving them two months to pay? Do you have any type of penalties if they don’t pay, if a check bounces, if a credit card bounces, like, do you have any, anything to protect yourself in your own contracts?

Right. And so maybe now is a great time to. Work with an attorney or buy a contract template that you can, you know, slightly customize for your business. But one that has been vetted by a really good lawyer, maybe it’s time to, you know, upgrade your contract. So that again, if something happens, you know, that you will be collecting all of your money within say 15 to 30 days.

And if you Don. There are penalties that you can enforce on your people, [00:20:00] right? And you know, this isn’t all about money, but this is really just about protecting yourself and being proactive in your business. So, uh, number six was developing relationships with vendors and really, uh, vendors and, you know, whoever is paying you and really understanding the contracts and potentially updating the contracts that you have to make sure that you’re protected no matter what happens in the future.

So those are my six tips to recession proof, your business finances, and really just be more proactive. Right? I don’t wanna be all doom and gloom and, or pretend that I’m an economist and could predict what is going to happen in our economy, because I certainly cannot, I don’t know if a recession is coming.

That’s what I hear, but like, Let’s just be proactive about our business finances. So one more time to recap, include finances in your strategic plan and really set your intentions very clearly so that you have a plan and we are not being reactive. Number two. Build up [00:21:00] your cash reserve, determine what you want that number to be, and then create a clear plan to work towards it.

Number three, get everything all of your finances caught up and organize and put processes in place to keep them caught up and organize every single month. Number four, be proactive about your future revenue streams. And so. Maybe brainstorm and start working on some future revenue streams. Now, again, rather than being reactive in the future, uh, number five, manage your expenses.

So really take a hard look at what you’re spending money on and make sure that there is a strong ROI and that it’s what you want to be spending money on and cut anything unnecessary now. And number six, build relationships with your vendors, with your clients and understand your contracts with them and potentially revamp those contracts to make sure that you are well protected regardless of what happens.

So anyway, my friends, those are my six tips to [00:22:00] recession proof your business, finances. I hope you found this helpful. You know, I’m here for you, right? So if you ever need anything, you know, I’ve got a whole team of CFOs and bookkeepers behind me that can help you and your business or your nonprofit with all of these things.

So you know how to find me I’m over on Instagram at Stephanie dot SKR, Y or you can just reach out to me directly, Stephanie, at 100 degrees, Hope you are all. Well, I hope you have a great week and I’ll catch you next time. Thanks for listening to the 100 degrees of entrepreneurship podcast to access our show notes and bonus content.

Visit100 Degrees Consulting Podcast Make sure to snap a screenshot on your phone of this episode and tag me on Instagram at Stephanie dot S K R Y. And I’ll be sure to share. Thanks for being here, friends, and I’ll see you next time.