One Financial Step You Can Take This Weekend to Protect Your Small Business – Part 1

Growth and comfort do not co-exist.
-Ginni Rometty, CEO of IBM

A Guide to Soften the Financial Impact of the Coronavirus Outbreak

By Kristie Van Pay, Prosperity Bookkeeping LLC
March 19, 2020

Who could have seen this coming? For the last several months I have celebrated successes with my Prosperity Bookkeeping clients. This year’s performance beat last year, profits grew, and cash reserves increased. In a matter of weeks, the topic of conversation has changed.

Now the questions are:

  • How do we survive a temporary closure?
  • How do we make sure our employees have what they need to work from home?
  • How do we compensate employees if they can’t work?
  • How do we adjust expenses for a downturn in business?

My thoughts and prayers go out to everyone. It seems that no one will remain untouched by the coronavirus outbreak. 

However, I am committed to helping clients and non-clients alike during this time. I am offering free advice about how to survive what will hopefully be a temporary disruption or setback for your small business.

Here is one important step you can do this weekend to help soften the blow of these uncertain times.

Review Your Expenses

Set a goal for yourself to eliminate 10 to 20 percent of your current expenses (or more if you can). Get brutally honest with yourself about what expenses are really necessary by completing the following exercise:

  1. Run a report of expenses by vendor for the last 12 months. If you are a QuickBooks Online user, this is called the Expenses by Vendor Summary report. I walk you through this process in my video called Reducing Your Business Expenses Using the Transaction List by Vendor Report. Please note, this report may not be available if you are using a version of Quickbooks Online that is below the QuickBooks Online Plus version. If you do not use QuickBooks Online, or if the report is not available in your version, you can Google, “How do I run a report of expenses by vendor in [name your accounting software].”
  2. Add up all of the expenses to get your total annual expenses (if you have at least a basic understanding of spreadsheet software, it might be easier to export your report to Excel so that you can quickly total these up without having to type them into a calculator).
  3. Multiply the total by 10%. This is the minimum amount of expenses you need to eliminate if you are shooting for a 10% reduction. Why do I suggest a minimum of 10%? Because some expenses take time to go away, and your goal is to start building cash reserves immediately to give you some wiggle room for a potential downturn in business.
  4. Go line by line through each expense (even if you are not incurring the expense anymore) and mark it with a “P” for any expense that directly generates (P)rofit, “R” for any expense that is necessary but can be (R)eplaced with a less expensive alternative, or “U” for any expense that is (U)necessary for delivering your offering (paraphrased from Profit First by Mike Michalowicz, p 121). Hint: Although I may be accused of being biased, this is not the time to eliminate your bookkeeper. I am committed to helping you stay financially healthy in difficult seasons, watch for areas of concern and provide tips and advice on how to get leaner if necessary.
  5. Have our staff, a trusted business-savvy friend or advisor review your list and challenge you to get more brutal.
  6. Now, get to work canceling or eliminating all of the expenses you marked U[1]. This may be a painful exercise but probably less painful than scrambling to replace lost sales.
  7. Start shopping alternatives for the items you marked R.
  8. Evaluate your P expenses to see if they can be restructured.

If you have a bookkeeper, I am sure he/she would be happy to assist you with this project. If you don’t have a bookkeeper and would like assistance book a free, online consultation, and I will be happy to assist you.

[1] If you have a business that, with the right tools and some preparation, work can be performed from anywhere, your rented or leased office space should definitely be on the U list. There are co-working memberships available for a fraction of the cost if you need a space to occasionally meet with a client or collaborate with your team; but, if you can work virtually, a brick-and-mortar office is a luxury, not a necessity.