Since the launch of Mike Michalowicz’ book, Fix This Next, I have used the diagnostic tool in the book to help me analyze and continually work on my business. The tool is a great resource for fixing problems, but it can also help you prepare for them so the impact is less when new problems arise.
One of the biggest problems I see ecommerce business owners struggle with is cash flow. As someone who lives and breathes Profit First, I’m always ready to work with clients and show them that cash flow is not the root of the problem, but a symptom. Once they understand that, we’re ready to tackle the real issues.
Cash is even more of a concern right now because of the possibility of an upcoming recession. So, let’s talk about what you can do now to prepare your business to weather a storm and prepare your survival plan checklist!
Analyze Operating Expenses
Let’s start by pulling the last three months of your expense transactions, either from a detailed transaction report in your accounting software or by reviewing your bank and credit card statements. Looking at each individual transaction, mark each as either a C, R, or K. These stand for Cut, Reduce, and Keep. When you look at each transaction, make the assumption that you can cut it. How would things change if you did? If you can’t make the new process work, look at how you can reduce that expense. Lastly, of course, ask yourself if you have to keep it.
There are no exceptions to this exercise. It’s about helping your business survive with less so you can save more. We completed this exercise with a larger seller, and they were able to cut $55,000 from their account. I’m not expecting you to drop $55,000 worth of expenses overnight, so I challenge you to cut $2,000 instead, which is the standard amount we usually achieve with new clients.
Look at Payroll
Are you operating at the right size for your business? Are your employees producing at the level you need? Look at how sustainable your current payroll level is if your sales were to majorly drop. While letting people go is never easy, you have to work on the preservation of your business first, unless you have months of cash reserves handy.
Know Your Margins
Is there any way to up those margins? Can you raise prices? Of course, I’m not saying you should start price gouging, but seriously think about your pricing. Things are only getting more expensive, and have you really looked at your costs vs pricing lately? See if changes can be made, either by reducing costs or raising prices.
Lines of Credit
If you’ve been operating smoothly with good margins for two years, it’s possible your local bank or credit union will extend a line of credit. It’s always better to ask for help in good financial shape than when sales have dried up and your reserves are gone. If you do get a line of credit, save that money. It’s your rainy-day fund, not an open checkbook.
Use those reserves judiciously. We had a client reach out to us and say, “With the help of bookskeep and the Profit First system, our business has enough cash to survive for the next six months and probably longer. Having no debt and an emergency fund is critical to long-term success, especially during uncertain times like we’re facing today.” That’s exactly the kind of peace of mind you want to create for yourself and your business.
If you haven’t implemented any of these processes or Profit First, it’s not too late to start. These are all actions you can take today to prepare for what may come tomorrow. If you’re ready to start, reach out to the bookskeep team today!