True entrepreneurs are made in tough times.  

As the U.S., Australia, and the vast majority of the world enter into a recession amid a global pandemic, entrepreneurs need to get on top of their finances, and then adjust their business and marketing strategies to withstand the economic downturn. 

However, it is not always doom and gloom. 

History shows there are winners and losers in every recession.

If you nail your positioning, adjust your sales and marketing strategies, understand your business finances, and have a little bit of luck on your side, your business can not only survive but thrive in this recession. 

In this post, we’re going to share some tips to help you prepare for this economic downturn. 

Know your numbers 

If you’ve followed on our blog and social media channels for any amount of time, this message will sound familiar. You absolutely can’t thrive in an economic downturn if you aren’t intimately familiar with your revenue, expenses, profit, and cash flow numbers. 

This starts with looking at your cash flow forecast on a weekly basis.  

Pro Tip: Here’s how you can find and read through this in Xero. 

It can also be helpful to set actionable sales targets (on either a weekly or monthly basis) and conduct a few cash flow forecasts (ex: best, moderate, and worst-case scenario planning). 

While you can’t control the market and how people react to your offers, you have full control over your response. One of the best ways to respond is through understanding the financial ins and outs of your business. For example, if you have various cash flow forecasts planned out, you’ll be able to make decisions based on logic and data instead of relying solely on intuition and emotion. 

Leverage the Profit First Accounting Framework 

Another thing that can help you at this time is to use Profit First accounting. We’re such big fans of this model that we are certified Profit First professionals and even launched a product around it. 

The Profit First formula is:  

Sales – Profit = Expenses 

This empowers entrepreneurs with a blueprint that prioritizes healthy business profits above all else. This is particularly valuable right now as if you’ve been using this framework for a while, you already have money set aside to help you withstand tough times. 

And if you are thinking, it is already too late. The recession is here. The next best time to set this up is right now. You might not be able to put aside much money. However, you are setting the foundation for a strong habit that will help you for years to come. 

Use the Bean Ninjas’ Financial System 

Once you are familiar with your numbers, it is time to build out a system and processes to keep you on track. 

This framework ultimately boils down to three things, including: 

  1. Flow – This essentially boils down to keeping your business and personal finances separate and using cloud accounting software, such as Xero. At the minimum, have separate bank accounts and manage all of your receipts. We recommend using HubDoc, and it comes free with Xero accounts as of March 2020. 
  1. Consistency – This is all about making sure that your Chart of Accounts in Xero is up-to-date and coded properly. 

Pro Tip: Check out our detailed guide that explains what a Chart of Accounts is and how to set it up properly.

  1. Rhythm – Then, it is about establishing a regular accounting and bookkeeping routine (ideally weekly). This allows you to make decisions based on the most up-to-date data. 

Pro Tip: A key step that many new entrepreneurs miss in this stage is reconciling their bank accounts. Here’s why this is important. 

Improving cash flow 

Once you have accurate financial data and proper systems in place, this is where you can start pulling levers to take control and improve your cash flow.

To use a sports analogy, we like to approach this based on defensive and offensive moves you can take. 

For example, in American football, you want to keep the other team from scoring field goals and touchdowns. If you keep racking up points and they can’t find the endzone, you’ll win every time.

In the sport of business, playing defense is simply: Don’t run out of cash! 

You can improve your cash position by:

  • Payments from customers
  • Cost & expense reductions 
  • Access to government stimulus money like what Australia and the U.S. offered recently 
  • Access to VC, private equity, or other investment funding 
  • Bank loans and lines of credit

Out of all of the strategies listed above, prioritizing your customers should be your top priority. When it comes to your customers, here are some ways to keep that cash coming in: 

  • Implement customer retention strategies and tactics 
  • Improve the quality of your products and services
  • Focus on relationships  
  • Follow up in a timely manner for late payments 

The reality is there are only so many expenses you can cut before you take yourself out of business. However, that doesn’t mean you shouldn’t review your list of expenses on a regular basis. 

  • Review any recurring SaaS subscriptions on a monthly basis. Is there any software that you no longer use? Any duplicate subscriptions?
  • Renegotiate terms with suppliers, vendors, and even lenders. You’ll likely be surprised by how many will give you more favorable terms in an economic downturn if you are willing to be proactive. For example, if you have a warehouse for all of your inventory, you might be able to get a 25% reduction on your rent for a couple of months. Your landlord would rather have 75% of the rent than worry about getting zero and have to go through with the time and money intensive eviction process.  
  • Pause any experimental or long-term investment projects where you are unlikely to see a direct return in the next 3 months. If sales are down 75%, now might not be the time to invest $50k+ plus on that fancy new rebrand and website.  

As for securing financing, the key is to have access to funding before you need it. As we alluded to earlier in this section, there are many options available—all with their own pros and cons.  

The most favorable typically is collecting any government stimulus funds that you may be eligible for. 

Pro Tip: Many countries have already passed large stimulus packages designed to help business owners survive the negative impacts of the COVID-19 pandemic. Here’s where you read our take on the Australian and U.S. stimulus packages. 

Another option is to secure short-term financing through options such as Paypal Working Capital, Moula / Prospa, or increasing the limit on your credit card. 

Anytime you are thinking about taking out a loan or incurring debt on the business, this isn’t something to take lightly. We recommend chatting with your financial advisor and accountant before committing to any new debt. 

A third option is to go the private equity or VC route. Taking on investors – or more investors – means that you are diluting your ownership stake in the business. However, this can make a lot of sense for capital intensive startups or eCommerce businesses. 

Play offense 

Once you have secured the cash reserves, it is time to play offense. This is the fun part for most of us entrepreneurs.  

This is where you can start thinking about: 

  • Innovation strategies to launch new products and services and streamline the operations and quality of existing ones so that they are 10x better than your top competitor 
  • How to expand your market share 
  • Mergers and acquisitions  

One of our favorite examples that we’re seeing of a brand that’s already playing offense is ConvertKit with their Creator Fund. This is a brilliant way to support online creators, who are struggling right now while positioning their business front and center. 

Helping Creators to make a living doing work they love with Nathan Barry of Convertkit [preview]

Can introverts succeed in building and scaling a business?In episode 92 of the Bean Ninjas Podcast, we chat with ConvertKit Founder and CEO, Nathan Barry, about his journey from solo designer to running a $20 Mil annual revenue company with 49 team members across 40 cities. Nathan was an author, designer, and blogger before venturing into the world of business, despite being an introvert. Anf and Nathan discuss: – Announcing the Creator Fund to support creators in response to COVID-19.- Their team at Convert Kit and how they prepared for events like closing down offices and taking hits on the business.- Working on marketing and growing Convert Kit as an introvert.- How Nathan did the unscaleable to get his initial clients- The effectiveness of webinars in their marketing strategy.- Why Convertkit launched a free tier of their email software.- The decision to offer a landing page product and how it came about.- Taking care of the financial side of things in the business.Listen to the full episode: https://bit.ly/34Wyc6YWhat’s your favorite email software?… Please click the 👍🏻 below, or share this post, so that others can benefit too. #alwaysgrowing #scaling #business #podcast #emailmarketing

Posted by Bean Ninjas on Tuesday, April 21, 2020

While no business owner wants to go through a recession, with the right mindset, it can help you run a more successful, smarter, and resilient business. All of the tips we shared above can give you a leg up.  

Want to learn more about adjusting your business finances in order to position your business for success through the upcoming recession? Join our upcoming free training webinars.

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