How to keep your (business) ship sailing through a financial storm

As the United Kingdom enters possibly the deepest recession for a generation, you, like most small business owners, are grappling with the dos and don'ts of how to manage your company's finances through a downturn.

'You do not get great sailors in calm waters'! The financial storm of COVID-19 rages on and the uncertainty your business is encountering will often feel insurmountable. The pressures on your time, energy and emotion as a small business owner will test your resilience to its limits. Today is the time embrace the challenge and ensure you are on top of your company's finances.

The below 'rule of six' will help you get your team's mindset aligned to the financial challenges ahead, and enable the implementation of the right decisions, at the right time, for the right reasons.

Cash today

Your first must-do is to understand the one priority that will keep your business afloat: cash today. Have you got enough cash to cover your operating costs? Can you pay your team? Is your next tax bill covered? Are the payment terms of your key suppliers achievable? The goodwill of key stakeholders will be lost quickly if you cannot pay on time - and that will add to your stresses downstream.

Tear up your financial plans

Your second challenge is to force yourself to tear up current financial plans and set new high-level priorities around revenue, costs and cashflow to communicate to your team. Be prepared to do the same again every month until life settles down. This is not a kneejerk; this is about you setting a new course for your team.

Financial forecast

Now to the main event: the need to set a course that aims to pre-empt any surprises lurking on the horizon and ensure the business avoids running out of cash anytime soon. This forecasting work will be invaluable in removing the emotive obstacles that may hinder you making decisive decisions later. Showing you are a leader who's not afraid to make tough moves that protect those team members owning the challenging times as their own, will be key to maintaining team morale.

To forecast you must have sight of and challenge the value of every cost. When revenue and cash receipts fall the temptation will be to slash every expense. That is not the controlled response. Instead you want to focus on cutting or eliminating the non-essentials and ring fence those costs needed to keep the business afloat. Luxury items can be removed with the goal of maximising cash now and building three to six months' cash reserve for the future.

Once revenue targets and costs have been challenged you will understand the cash gap and can begin to work creatively to bridge it. Focusing your forecasts around finding new ways to solve problems that your existing customers, team and suppliers are experiencing is the hallmark of a smart small business owner. Being aware of what is available to you in terms of government assistance, grants, business lending and tax relief (like R&D) could be your lifeline.

Financial processes

To keep the business on the right track, you should be on the pulse of your businesses finances every day. Having financial processes and cloud accounting technology in place to give you up-to-date financial information, quickly, is key. Your decision making depends on having real-time info. Equally, banks and other lenders can help you quicker when your numbers are up to date.

Crisis mindset

Now that you understand the way forward, everyone in your team must be aligned with a crisis mindset. Tough times demand that you all do a little more with less. Quick action requires you to know the financial position your business is facing every day. This focus will also enable you to report those small wins, which are important for motivation and positivity during a time that appears like it will last for ever.

Rewards and recognition

Beyond you as the business owner, there are two types of people to look for to help you manage this crisis.

First are those that live and breathe the values of your organisation. They may not be your top performers; they will know all the ins and outs of the company, though. These guys are vital to understanding the impact of potential changes on the business. Often, they are the disgruntled ones, unhappy with the company's performance. These people are passionate and will point out the uncomfortable truths to you.

Second, a turnaround is also a real opportunity to find the next level of talent to help your business grow. Recognising the members of your team who are waiting for an opportunity and are excited to be part of taking the company forward is often enough to attract and retain the right people. Retention in a crisis cannot be about unaffordable salaries and bonuses. It is more about figuring out individuals' needs.

Good crisis managers actively look for these two types of people and find a way to get them involved in delivering the new financial plan.

Summary

A financial crisis is a time of uncertainty for everyone. Be prepared that the people you are working with today are unlikely to be the ones adding the most value and impact at the end of this crisis.

By following these six steps you will utilise the core skills that allow small businesses to excel - pivoting, being lean and cash focused - and with a fair wind leave this storm with more cash on hand to prepare for the upturn and opportunities ahead.