Accounting Pitfalls and How to Avoid Them — Executive Allies
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We have all been seeing the terrible news and economic outlook over the next few years related to inflation, the war in Ukraine, sky-high fuel costs, and the tight labor market. As a business owner, you are probably wondering how this will impact you, your employees, and your company. if you are the majority of business owners, you have already been impacted by at least one of these major economic issues! Now, we don’t have all the solutions to these issues, but we can definitely give you a few suggestions on how to best weather the storm when it comes.
You may have heard the saying, “prepare for the worst but hope for the best” and that is definitely the course we recommend. However, what does preparation look like for your business? We have a few suggestions for you to implement right now to be sure you are ready!
1. Create a cash reserve
Having access to cash of approximately 3-6 months worth of operating expenses will put you in a good position to be able to sustain operations in a worst-case scenario. This level of cash may seem hard to grasp and might be discouraging to read, but taking disciplined steps to make this happen are crucial in times of growth and excess. The first step is to calculate what your operating expenses are. This total should include all amounts that will continue regardless of the level of sales that you have so don’t forget to include debt payments and tax estimates.
Understanding the flow of cash is also critical. It is one thing to have information that shows a positive net income, but in a situation where the economy is slowing, cash will be king! Having a strong knowledge of your financial information will give you the data needed to know which levers to push, pull or tweak to make sure you can continue on with success!
2. Invest in and maximize your resources
Before the economy wavers, it is a good time to evaluate your team, tech stack, assets, and other resources that make your business successful and consider steps you can take to make those resources more efficient. Start out by asking questions like:
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Are we fully utilizing our tech stack to maximize the time of our employees?
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Are there any gaps in our technology or areas that could be improved by technology?
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Is the level of staffing you currently have appropriate for the business you currently have?
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What changes would you be required to make if your business shrank by 20%?
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What if your business grew by 20%?
Considering those questions and having a plan for both scenarios will highlight excess or major gaps. Leveraging part-time employees or outsourced services may provide you with confidence that your valued employees can retain their positions, without fear of layoffs.
3. Invest in your client relationships
Now is the time to ensure that you are providing great value to your customers and clients. Do you have any contracts at risk? What are ways you can make your customers or clients have more “stickiness”? What other services can you provide that would deepen the client relationship?
Implementing client check-ins or surveys like Happy-or-Not, ChurnZero, or other NPS (Net Promoter Score) tool options can alert you to client dissatisfaction early on so it can be addressed by you or your team.
4. Explore and secure options for financing
This is a step that should absolutely be done BEFORE you have a need for additional access to capital. Lines of credit are wonderful tools to have in place to create flexibility in cash flow and open up your options. You do not want to be in a position where you are going to the bank with a profit and loss statement showing month-over-month losses requesting credit. Talk to your business banker now!
Other options may include refinancing assets, opting to finance newly purchased equipment or vehicles rather than drawing down cash, or speaking with potential investors that are interested in growing your business alongside you.
The news may be full of doom and gloom for the economy, but entering into a time of uncertainty with a plan provides a certain level of comfort as you will already have access to the tools your business needs to weather the storm. No one can predict the future, but we can certainly walk into the future with our tool belt full; ready for whatever the future brings!