Ramon spoke with two money experts — Carol Roth and Tricia Taitt — about how to handle finances and money during COVID-19. If you're a business owner, then you know first-hand how rapid the changes in cash flow have been.
Did you prepare for something like this? Probably not, but that's ok! Most businesses didn't. The below tips should help set you in the right direction if you're still having a hard time managing your money right now.
The Big Picture at Present
Carol explains that there are multiple small economies happening at once right now, all in part to COVID-19. There are big companies and the stock market hitting all-time highs while small businesses are doing everything they can just stay afloat. Some people are doing really well and are appropriately positioned. They're providing the services that are in need. And then there are many service-oriented businesses, especially personal services, that are really struggling. They shut down and in some cases they've had other issues to contend with as well such as trying to get employees back to work, not seeing the same kind of foot traffic, and having to deal with COVID protocols.
“You want to be investing when everybody else is scared. You're going to be greedy when people are scared and then you should be scared when people are being greedy.”
Carol said that many people get it backwards when everything's going well. But when we're about to head into a recession, that's when there is the confidence to get going. And when things go poorly, that's when they retreat. If you look at the way business cycles happen, that’s doing it backwards. So now is a really good time, as small business owners are very uniquely positioned, to take advantage of the ability to connect with and form bonds and relationships with customers.
Tricia then explained that businesses grow through five stages. They grow from startups, survival mode, where the whole focus is on cash flow. And then they move into a stability mode where they'll focus on sales and start making a profit. And then they get into a space where they're focused on maturity and expansion. They're focused on mitigating risk and protecting the entire business. What the pandemic has done and what the recession did in 2008 and 2009 is refocus everybody back to the cash flow stage.
The Numbers of It
Tricia told us that CPA's are overloaded right now, and not just because tax time got pushed back. Besides taxes, many of their clients are coming to them with all kinds of financial questions about PPP, EIDL loans, etc. When there is a crisis, people tend to look at their numbers. When there isn't a crisis, they don't look at them at all in many cases. Tricia meets with $10 million businesses that are a mess with their financials. So she encourages people to really lean into the numbers, get intimate with it, and find opportunities to lower costs in a strategic way.
“I don't believe that business owners should just look at their bank account or even rule with their gut feelings. I really encourage people to get intimate, even if you feel uncomfortable, don't put it at arm's length, don't run to your CPA for everything.”
For example, if you have a lot of credit card debt, find some zero or some lower interest credit cards. This allows you to pay the minimum for a few months without interest piling up.
Cash Flow Yoga
Carol introduced us to the idea of cash flow yoga: You take the cash in very quickly, and you put it out slowly. So this means looking at your customers and saying, is there some other way that I can bring more cash into the business? Maybe it's selling gift cards, special bundles, future services, or some sort of a retainer. Whatever it is, it helps get more cash into your business today.
People understand that others are struggling right now. Many people who connect with small businesses are happy to show support. They understand the benefit of you being in business over the long run.
“So you may be able to negotiate better terms, a longer payment cycle, or maybe a discount for paying upfront. And so you shouldn't be fearful of having those discussions. It costs you absolutely nothing other than a few minutes of your time to ask. And the worst thing that could happen is that they say no.”
2 Ways to Save Money in Business
Besides looking to create new revenue streams and get cash in the door, you always want to save money. Below are two tips on how to save.
- Many things are negotiable: Tricia reminds us that many things we might not normally think of can be negotiable right now. If you've had a long relationship with a vendor, a landlord or a credit card company, let them know.
- Cut the extra: Look at all your recurring expenses and see what’s not needed right now. Maybe your business has changed because of COVID-19 and you don’t need all the subscriptions you’re paying for. Or maybe you have some nice “extras” that you can pause for a while.
There's a lot more information on this topic, but unfortunately, we could only fit so much into one article! Check out other interviews here.