How Do You Manage Your Cash Flow And Avoid a Company’s Debt Amid A Recession?
Melissa Bradley has helped guide hundreds of business owners through business challenges.
The founder and CEO of 1863 Ventures and an investor and serial entrepreneur believe that when a recession turns into a reality, customers are forced to cut back in response to rising inflation. It’s not new to minority entrepreneurs.
“They are concerned because of the impact it will have on customers,” Bradley explained to CNBC the Senior Personal Finance Correspondent Sharon Epperson during an online Small Business Playbook event on Dec.14. “The reality is Black and brown businesses are used to being locked out of access to capital and used to having to spend more for things, so they plan.”
With an 85% success rate during Covid with over 3000 Black or brown entrepreneurs with whom she has formed partnerships, Bradley says consistent planning and “always expecting the worst” is part of a minority company owner’s bloodline. “Nothing is a guarantee,” Bradley said.
The biggest challenge for entrepreneurs is the need to consider the financial capabilities of customers to pay in the coming years. The latest report on retail sales reported a more significant fall than expected, which added to the fears that the economy and the consumer are slowing down rapidly.
“The first thing to do is make a plan. Your financial statements reveal many things,” Bradley said, noting that they reveal more than just accounts and liabilities. “Be laser-focused on what financials are telling you about customers,” she added.
It’s more essential than ever before. She adds to know the drivers behind the growth and to dig into the details of every piece of information available to you in the business and show what your customers love and don’t like, the places they go to the shop and browse, as well as how often and when they return.
“Keeping customers engaged and happy is the greatest gift you can give yourself this holiday season to ensure revenue keeps coming in,” Bradley stated.
She offers some tips to entrepreneurs about staying clear of the nasty debt trap to make suitable investments and maintain sales throughout a downturn.
Find out the costs and costs.
Cash is king “or queen,” Bradley stated, based on the business owner, and it’s the first thing you need to manage in the face of a challenging economy particular, by examining costs and costs.
She shared an example of a spirit company which experienced a significant rise in the price of glass, which led to the need to reconsider pricing. Every business must be able to pay for its expenses without having to dip into the owner’s pocket to pay, which has become more complex as inflation increases.
Don’t rely on personal savings.
Bradley said business owners shouldn’t dip into their savings and “borrow against your house” to keep their company running.
“You need to make sure your business can stand on its own,” she stated.
Entrepreneurs are sold on the bootstrapping mindset, “a fake it until you make it” phrase; however, the truth is that it’s a significant mistake to drag your personal life to the ground while your work life takes an up and down.
“Stay focused on the numbers and know some months are going to be high and some low,” she said.
Consider rethinking contractors and the extra cash
If business owners remain in control of their finances, steer clear of poor debt choices, and make the right decisions, they could be lucky enough to accumulate additional cash. How they invest that money could have a significant impact, whether it’s positive or negative.
Bradley advised his readers that the “world of contractors and 1099s” is beautiful for small-business communities. Still, in times of uncertainty, there’s a higher risk of variable costs that contractors are operating under. Variable expenses are more difficult to anticipate as a part of cash flow.
She suggests moving higher costs into the fixed-cost bucket “so you can become laser-focused on it, so you don’t have a deficit at the end,” she added.
Examine the recourse to consultants
The number of new businesses created in the last few years has been high. When companies are just beginning to get started, they rely more on consultants. Bradley believes that now is the time to reconsider a dependence on several consultants. “Every quarter, think about what key operations and processes are needed to keep the business going and how many people are touching them,” she explained.
If fewer individuals are involved in any way, whether external or internal, it is risky in itself, but it’s not an indicator of a successful business. Every task must be centralized and consolidated correctly, which could be a case of having one person doing the job rather than three consultants.
Bradley offered marketing as an instance, with the responsibilities of scriptwriting, online media, and photography being handled by different individuals. The best option for money may be to use one person for all three tasks. However, she noted that managers need to be more relaxed running their business to be aware of how their money is spent down to the level.
However, being busy is not an excuse.
“You can’t make it if you are not paying attention to the steps along the way; how are you spending money, so it has a positive ROI over the future,” she added.
Put a bit of money at a time into your personal development
Since she is an investor in various companies, Bradley sets a cap on what she will invest in any company. “You can’t fund a business forever,” she explained. Determining the amount of investment and the time frame for investing is part of being disciplined with the funding process.
It is crucial to keep business and personal accounts distinct. Still, it’s just as important to recognize that there will come a time when you require more funds to run your business, and you must pay yourself every month -not necessarily a huge amount but steadily.
“Stay on top of being able to pay yourself a little and pay off those expenses,” Bradley explained.
She stated that One of the most significant problems entrepreneurs face is not paying themselves. “Even if you have $100, pay yourself at least $50. This is about forming the muscle to continue to grow your business over time,” she said. “Take $50, add $25 on a credit card, and add $25 to your own. It’s not about looking forward to the huge jackpot at the end of the rainbow. … The focus is on consistently getting rid of personal debts and investing in the company,” she said.
Changes should be made in smaller amounts.
Concentrating on numbers will likely lead to making adjustments in light of a deeper understanding of what’s or isn’t performing. Bradley said many businesses were established in recessions, so the need to change shouldn’t be a cause to worry about.
The business owner should not be making changes constantly, as it is an example of anxiety. However, changes should be evaluated in smaller increments. Every month, every quarter, business owners must determine modifications. Also, they shouldn’t think about “next year,” Bradley explained.
“What do you hope to do in the next few days? By the close of this year? In January? … In January? Making adjustments is not a sign that you’re a failure, but it is a way of keeping up with the market’s demands and getting from your market experience,” she said.