4 Things Business Owners Can Do To Prepare for The Next Financial Crisis
COVID-19 has impacted the financial health of the U.S economy as a whole and continues to break historical crisis records. When planning for the year, I am sure none of us included the impact of this pandemic in our financial plans, however, it is here and causing great harm to our prospects. At this point all we can do is survive and learn how to thrive once these unprecedented times are over.
Initially, $349 billion dollars in funding was issued to provide relief for small business owners during this pandemic. However, many businesses were unprepared to apply for these funds due to poor financial management. Remember that, as a business owner, it is your responsibility to assure that your business is in good financial standing.
This moment is the perfect time to position ourselves to be better in the event of another crisis. In this column, we’ll cover four steps business owners can take to prepare and protect themselves in the future:
1. Analyze Your Business Financial Health
The COVID-19 pandemic should not have been the event to take a look at the financial health of your business for the first time. As a business owner, you should develop a habit of analyzing the financial health of your business on a monthly basis at a minimum. During your analysis, you should examine the cash flow and cash reserves of your business. As you would implement a personal financial budget, you should develop a budget for your business. COVID-19 has shown us the importance of having cash reserves on hand to support your business and, ultimately, yourself during times of uncertainty.
2. Implement A Proper Method of Bookkeeping
Not having a proper method of bookkeeping implemented for your business can impair your ability to quickly generate your key financial report, profit & loss statement (P&L) and balance sheet (BS). These statements are often required when applying for business loans and other forms of financial assistance. Bookkeeping can be performed using various methods including sophisticated excel spreadsheets or bookkeeping softwares such as Quickbooks or Xero.
3. Pay Yourself Correctly
Many business owners often heavily rely on income from their businesses to support their personal lives and access these funds through owner withdrawals. As this is a common practice for new businesses, experienced business owners should consider placing themselves on payroll as a W2 employee to properly separate themselves from their business. Though you’ll have to pay payroll liabilities, in the event that your business is unable to generate income, you can apply for unemployment just as any other employee can.
During this crisis, there is funding available to help small businesses continue to cover payroll; so long as you have the proper documentation to prove your payroll liabilities, you can apply. Paying yourself correctly starting today will provide a better financial cushion in the long run.
4. Hire a Financial Specialist
During a financial crisis, year-end, or tax season, shouldn’t be the only time you seek advice or assistance from a CPA or other financial professional. Financial professionals like myself, with my team at Fola Financial, are here to help year-round with planning that could better position your business to survive times of financial hardship. You don’t want to seek assistance when it may be too late to pull you out of a financial hole. As a business owner, you should be taking the necessary steps throughout the year to plan and prepare for what may come.
It’s important that you continuously analyze the financial health of your business, maintain proper bookkeeping practices, pay yourself correctly, and actively seek help from financial professionals to keep your business in good financial standing. If you commit to taking these four steps today, your business will be better positioned to weather any future financial crisis that compromises your market.