BUSINESS HIT BY COVID?
In these unprecedented times, many of us are now having to balance more than we have ever had to. I personally am doing my best to balance my physical and mental well-being, work schedules, homeschooling for my 4-year old son, housework, making meals, and getting ready for our second son due to arrive in 6 weeks while managing 3rd trimester pregnancy symptoms. And putting all of the home challenges aside, it is more important than ever to have a deep understanding of how our businesses are performing under the current economic circumstances.
Here are a couple of quick tips that will help prioritize the data you should be looking at and how to keep plugging forward while faced with challenges:
Invest time in discovering the profitability per product or type of service - In other words, do you know for each product or service you provide, whether or not that product or service is profitable? And by how much? How much does it cost to make and distribute each and every product or service? By understanding this critical piece of information about your business you gain a deeper insight into your company and can quickly take needed action. For example, when working with companies, I often help them discover that one or more of their products are not profitable. This leads to developing action plans around increasing the profitability of that product (through decreasing costs, increasing efficiencies, or adjusting pricing strategy). And in some cases, products or services are not able to become profitable and a decision can be made about whether or not to remove that product line or service offering. This can help increase the company’s ability to offer and market those products or services which are profitable and improve the overall company profitability.
Decrease costs - Plain and simple. I’m sure many of you are thinking, “uh, duh” but the only way to thoughtfully and efficiently decrease business expenses is to have a good understanding of what the biggest contributors to cost are. So take a look at which expenses hold the highest percentage of costs on your balance sheet and attempt to tackle those first. Would you save the most money by increasing operational efficiencies? Searching for new supply chains? Monitoring employee productivity? Or strategizing ways to increase employee performance?
Build a comprehensive pro forma - In times like these, businesses that are likely to be negatively affected should strategize financial management around minimizing cash burn and carefully planning out these cash flows. Quite often, a company will build a pro forma solely focused on increasing revenues and distribution of those revenues. But a pro forma can also be used to look at improving accounts payable, for example. Take the time to analyze, prioritize, and negotiate your accounts payable to see how to maintain as much cash on hand as possible.
There is so much information generated by the day-to-day operations of a business and it can sometimes be paralyzing. But by focusing on the three points listed above, you can much more easily navigate the turbulent times and understand fairly early in economic distress how to weather the storm. And even better news is that by following these steps now, you greatly increase the chances of financial success for your business during stable times and can gain a competitive advantage.
The last point I will leave you with is that it is important to monitor these metrics more frequently during times of uncertainty. Keep an eye on these metrics weekly or daily instead of monthly or quarterly. That way you can understand how hard you will be hit before the impact compounds week over week. You will also be able to monitor whether or not your efforts are moving the needle in the right direction and can make swift pivots, as needed.