Focusing on going back to the basics
It’s been nearly eight weeks since Gov. Wolf mandated all nonessential businesses to shut down, and those who are considered essential to operate with very limited freedom and strict guidelines.
We are experiencing an entirely new way of doing business that will permanently affect how small business operate in the future. Small business cash flow has been drastically impacted to the extent that it will take many businesses years to recover — if they are able to come back at all.
Thankfully, as a result of the economic situation, the government has come up with a plan to assist many small businesses navigating these trying times.
Some have received the financial assistance, while some are still waiting to receive the government aid in the form of the PPP (Payroll Protection Program) and/or EIDL (Economic Injury Disaster Loan) programs.
The problem is that while the programs were created with good intentions to help small businesses, their current processes and systems are not strong enough to assist everyone in a timely manner. Many small businesses, unfortunately, will drown way before they are able to receive their life jackets.
As a humble reminder, the reason we got into business is because we wanted to experience economic freedom and to make a difference in our communities by providing employment to people so they can provide for their families. Having said that, please remember to build your company so it’s sustainable and able to operate and thrive in down times. It’s also critical to build a strong contingency plan that will keep your business moving forward during economic slowdown or when new laws change how your business operates.
These are very difficult times we are experiencing, and as business owners we must go back to the basics of operating a solid business by focusing on financing, managing income statements, balance sheets and creating a strong emergency plan.
When you hear the expression “cash is king” it’s because, without it, you are dead. As a business owner, make the effort to get really good at understanding finances and putting an emergency contingency plan in place so your business can operate for six to 12 months should an emergency — like another worldwide pandemic — happened to occur.
It will require a ton of discipline and delayed gratification on your part, but you will be glad you did. Take ownership of this plan as the leader of your organization and do not delegate it to anyone, especially as you are building and growing your company.
To build your emergency contingency plan and to continue to improve your cash flow there are five things you can do. This applies to any business, it does not matter what industry you are in, whether it’s service, manufacturing, technology, construction, restaurant, solopreneur, etc. If you become disciplined at improving all five areas, you will have a fulfilling career as a business owner.
The first two focus points you can find in your income statement:
1. Sell more of your products:
The
more sales you have, the more revenue you generate for your company to pay for obligations, rents, mortgage, payroll and all the other expenses associated with running a business. To increase your sales, provide consistent good product/service and build your customer base.
and be smart where you spend money the company earns. Cash is your tool, treat it with respect.
The next three points you must constantly improve are
Imagine you sold a product/service and your customer will be paying you in three months. In the meantime you have to pay your employees, rent or mortgage, insurance, utilities, etc., but you don’t have the cash even though the sale happened and has been recorded. Reducing accounts receivable by accepting credit cards, reducing payment terms and getting paid faster by your customer is a must.
In my business, too much inventory is like cash sitting on a shelf not adding any value to the business operation. Do whatever it takes to stay lean when running your business, less is better.
By doing so you will see a decrease in net income but at the same time, you will increase the cash balance when adjusting net income in the cash flow statement. To make it simple, when you take a little longer to pay your bills — while respecting your vendors’ payment terms — you will increase your cash balance and be able to allocate cash to activities that can add more immediate value to your business and help you stay afloat during tough times.
With the right amount of commitment and discipline, anyone can build a long-lasting sustainable business that can face and weather prolonged difficult economic times. By focusing on the basics and staying disciplined during times of prosperity, business owners can build a business that will last for years to come.
These difficult times will pass, and when they do, remember to continue to be great at the basics. Much success.
Juan Martinez is owner of Don Juan Mex Grill, which has five locations in the Lehigh Valley. He can be reached at juan@donjuanmexgrill.com.