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How to survive a financial crisis

As a small business ourselves, we know that the global crisis of the coronavirus is likely creating unexpected financial challenges for you. We feel it, too.

But the good news is that support for small business is coming, either through state or federal government assistance or through organizations offering grants and no-interest loans. With the growing number of support programs, there are ways for you and your team to get the cash you need to sustain yourself and your business through this tough period.

No matter what financial situation you find yourself in now, it’s more important than ever to get real about what that situation is. To survive this, and to bounce back on the other side, you need a clear financial picture of your business and a cash system that allows you to see (and forecast), as accurately as possible, your cash in and cash out. That’s how you make it through a financial crisis and set your business up for recovery.

During “normal times,” we suggest creating a revenue forecast and a budget plan for a 6- or 12-month period, but in this circumstance, fix your budgeting period anywhere from two weeks to two months, depending on what you can confidently predict. Here are the simple steps to creating your short-term budget plan. 

1. Get real with your current financial situation

This may not be your wheelhouse, but when you’re experiencing financial hardship, you can’t abdicate this to anyone else. You should be the one to create and control the budget, along with whatever financial team you have. 

2. Establish your budget period and planning cycle

What should the timeframe for your budget be? In this moment, when the economy is changing so rapidly and unpredictably, aim for a one-month budget plan, but revisit it weekly to update your plans and forecasts. 

3. Build your operating budget for the month

Budgeting isn’t an exact science. So you’re going to need to make predictions, which—even at the best of times—can be difficult. To build your operating budget, you’d normally choose your revenue goal for the month and use it to calculate your profit goals. In times of crisis, when the most important thing is keeping your business alive, your goal may be to simply break even for a short period. To do that, you have to take a hard look at where your company is financially today. What’s your average monthly revenue? What are your operating costs? To break even, your revenue must balance your operating costs.

So what’s the break-even number for your business when it’s running as usual? If you don’t have immediate access to that information, look at Accounts Receivable. Talk with your bookkeeper or accountant, if you have one, to help you figure this number out.

With your current break-even number, you can realistically assume your operating expenses for the next month based on where they are today, and that will give you a starting point for your adjusted revenue goal.

4. Modify your budget for an adjusted revenue goal

Make an accurate prediction of the revenue you’ll make this month, then compare it to the revenue goal you just created to cover your operating expenses. For example, if you’ve already experienced a 25% loss in revenue in the last two weeks, you should plan for that loss to continue for the next month. So look at your revenue for a regular month minus 25%—this is a safe prediction of your revenue for this month.

And don’t forget to consider financial aid in this equation! Any support in the form of lines of credit, loans or grants that you receive counts as revenue and can be used to fill that gap and keep you in business until the market stabilizes. (We highly recommend looking at the resources linked above and staying up on the news. There are new resources and developments daily! If you don’t stay current, you could miss out on some serious financial support.)

5. If necessary, cut operating costs

If after you’ve gone through the budgeting process, you still see a gap between your revenue reality and the goal you need to cover expenses, you have some options. You can aim to collect on outstanding money owed, or you could start cutting costs. But be strategic. If in two months the market rebounds and you need to get back to your normal production level quickly, you have to be capable of that. That’s to say, your priority is to maintain your people if at all possible, so take a look at the current federal financial stimulus package to help you think through some possible short-term strategies.

6. Repeat

At the moment, the economy is changing day by day. Chances are, you may need to update your budget plan more frequently than you’d expect. But that’s okay. The key is to know what’s happening and be proactive about what you can do to come out the other end of this financial crisis ready to pick up where you left off—and be better for having taken hold of your company finances. 

We’re committed to helping business owners through this time. If you’re looking for more information on getting in control of your finances, check out other recent blog posts on the subject, “Three essential ways to get comfortable with finance,” and “How to grow (and protect) your business by mastering your finances.” And if you have any questions or budget solutions you’ve developed, please share them in the comments below. We’re all in this together, and I know so many business owners who could use all the tools and resources they can get. 

Tricia Huebner

Written by Tricia Huebner

Tricia is EMyth's Director of Coaching. She joined the EMyth team in 2002.

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