We’re about 6 months into the Covid-19 pandemic, and although each small business owner’s experience differs during this time one thing is universal: uncertainty. Whether your business is currently thriving, drowning, or somewhere in between, in times of economic uncertainty whether due to the collapse of the housing market or a global pandemic, things can change very, very quickly. I believe the best financial mantra to focus on despite your circumstances is “focus on what you can control”. Financial awareness is critical. Awareness of your strengths, of your weaknesses, of your opportunities, and of your threats.
You can’t focus on what you can control if you don’t know what you’re working with.
Whether you’re having your best year as a result of the pandemic or wondering if you’ll be able to stay in business, these two, multi-layered tips can help you correct your financial weaknesses and both identify and pursue your financial opportunities so that regardless of what the next 6 months hold you’ll be coming from a place of greater financial strength.
If your cashflow is good or great:
Despite so much economic uncertainty, there are opportunities in the current market especially if you can show that your business is stable or doing better than it was pre-covid. Mortgage rates are at an all time low as are home equity line and home equity loan rates. Add to that the fact that in many areas, there is low inventory for the number of interested buyers and real estate values in those areas are at an all time high and there is a perfect opportunity to potentially gain access to the equity in your home to shore up access to that equity as an additional source of emergency reserves, lower your mortgage payment, accelerate mortgage payoff with a lower interest rate, refinance an existing equity line for lower interest paid on your current balance, or all of the above.
If you don’t own an existing property, but can qualify based on your cashflow, this might be a good time to buy a multi-family or a commercial property that can serve as your home and your business location. Not all banks are small-business friendly when it comes to lending, especially in times of uncertainty but with strong cashflow and a strong credit score it’s worth shopping around for someone who will work with you.
Maybe now is the time to look into a business line of credit or increasing your personal or business credit card limits. Making sure you have adequate reserves and are taking advantage of low interest rates while things are good is important because at any time things can change and you want to make sure you’re in the best position possible.
If your cash flow is strong, but your credit isn’t- don’t freak out. Take the time now to figure out what you’d take advantage of doing if your credit wasn’t an issue and what kind of credit score you need to make that happen. Then, figure out what you can do to improve your credit score in the next 1, 3, or 6 months to make that happen. You can’t improve your credit score over night, but consistent action in the right direction can mean that in 3-6 months you’re in a different position. Good credit means lower interest and better terms, which usually means more money in your pocket long term.
If your cashflow has taken a beating:
If your cashflow has taken a beating, but your credit score is good the best thing you can do to start is to take inventory of all your sources of capital. Do you have available credit on any credit cards? How much? Do you have a home equity line that isn’t maxed out? What’s the interest rate and what are the payback terms? Knowing what credit you have available and at what interest rates can help you make good decisions about which of your sources of capital to use if things get worse and you’re in a pinch.
If you don’t have much available credit, consider calling your credit card companies and asking for limit increases. Sometimes this is as simple as logging into your account on their websites and requesting a limit increase that way. Often there are no financials needed to do this and if your credit is sound and you haven’t recently maxed out all of your cards or made other requests within the last year, there’s a good chance you’ll be approved. Increasing your credit limits so that you can use those is defensive planning in a bad situation, it’s really for the worst case scenario.
One of the best things you can do to help minimize or avoid needing to actually use that credit is to take a critical inventory of your expenses. Print out your last 3 months’ bank and credit card statements and take a hard look at what you’re spending and where and then make a list of your highest priority expenses to cancel or change. Have two cars in the driveway but you and your spouse are working from home? Does one or both of them have a monthly loan or lease payment? If so, a high priority action item after evaluating your situation might be to turn in one car for one with a lower payment or get rid of it altogether. Even if you don’t make any money off of it, eliminating a monthly payment might be just what you need to get by.
Another strategy? Eliminating or reducing expenses that you aren’t using or aren’t using at the same capacity. Are you in the office 2 days per week now instead of 5 because of Covid restrictions of lack of client bookings? Call your internet and other utility providers and explain the situation. Ask if there is a way to get a discount or change your package based on the decreased usage. Or if possible, and you can go without while you’re working from home, freeze the service. Taking a critical look at your expenses can mean that even if your income is reduced, you can survive because you’ve managed to decrease your expenses proportionately. As things start improving you can make strategic changes, but for now, being critical about expenses instead of keeping expenses flat and accumulating debt can be the difference between still being in business 5 years from now and being forced to shut your doors.
Businesses that are thriving or maintaining despite Covid can still benefit from an inventory of their expenses. Freeing up cashflow and thinking critically about what you’re spending and why when your business situation changes can mean more money in your pocket for your personal lifestyle, goals, and nest egg. Those that are currently struggling and choose to do a business inventory should continue to pay attention and maintain awareness of spending so that the habits built during the tough times can pay off and help you catch up when things start to improve for you.
If you’d like a template you can use to take inventory of your debt, assets, expenses, and relationships along with helpful ideas about areas you can free up cashflow using the template, emailwith the words “Inventory Planner” in the subject line.