There is no getting around it, COVID-19 has caused and continues to cause disruption. What were considered normal behaviors around buying patterns, dining, travel, and so much more have changed, and some of those changes may become the new normal. In recent months, we have launched the deployment of vaccines across the country and as a result, more and more people are becoming increasingly confident in resuming some of the activities they enjoy.
While that seems encouraging for commerce, for better or worse COVID did leave a permanent mark on how conservative people have become with their spending. As a business owner, it’s vital to be able to recognize how widespread conservative spending could impact profitability and how to adjust and prepare.
Strong Budget Controls Are Key
The most commonly overlooked aspect of a business is budget discipline. As a business owner, having discipline over your budget is vital to success. Create a monthly plan and stick to it. Know how much income you expect to receive. Know how much your monthly expenses are. Reviewing your expenses monthly is a good way to keep tight control on your spending so it doesn’t get out of hand. A good, general rule of thumb for start-ups on budget is to spend only 50% of what you make and place the additional 50% in reserves.
Budgets are not set in stone. Like your business, they’re living things that need to adapt to the situations presented. Be prepared to revisit and review your budget monthly, maybe even weekly, to stay on top of your cash flow and reserves. Understand that your budget is a tool for your success that needs to flow with the business climate. You may need to adjust factors and assumptions as your business grows or changes along the way. Creating your own budget for your business is foundational to its success. If you don’t know how to start and would like a budget model to either use, or get ideas from, there are free downloadable worksheets available.
Most accounting software packages have a cash flow model to project out any cases where your receipts may dip, and in some cases, dip below your expenses. By using the tools available to you, you can have the forward insight to cut back on expenses as quickly as possible to grow your reserves.
Reserves Help Weather the Storm
Pre-COVID it was common for businesses to need 3 months of reserves to support normal business operations in case of emergency. In this pandemic and moving into post-pandemic times, business owners should look to have at least 6 months of reserves to see them through.
In reality, business owners really can’t have too much in reserves. We have been discussing “worst case” savings preparations, but truthfully, savings aren’t just for safety nets. After you have saved enough for your 6 months of reserves, don’t stop saving! You will need that money in the best of times to do anything from purchasing new equipment, to expanding your business, to purchasing new commercial real estate, and beyond. There are a couple different account types to think about when looking for a place to store and grow your hard-earned reserve funds.
Service Credit Union offers a Business Savings account where you can earn dividends with no monthly fees. This account type is great for start-up business owners looking to build up their reserves. Our Business Savings account pays competitive dividend rates, and with a Business Secondary Savings account you can actually separate out your savings goals by account and still enjoy the same great rates.
If you are interested in even better dividend rates while still maintaining access to your funds when you need them, business owners should consider a Business Money Market account. You will be required to keep a higher minimum daily balance, but you will still have access to your funds any time you may need them.
Take advantage of all the tools available to you. Service Credit Union offers digital tools to help keep your finger on the pulse of your business in real-time, such as mobile and online banking for businesses. Our online banking platform integrates with QuickBooks to make these practices easier.
Regardless of their financial institution, the best business owners take advice from professionals. Keep your accountant and your banker close to your plans and don’t be afraid to question them to ensure you are making the best financial moves for your business.
If business ownership is your dream, pursue it responsibly for the greatest success, no matter if we are recovering from a global pandemic or not. Ask yourself these readiness questions:
Do I have a good idea that is scaleable? Can this idea grow without being hampered by its structure?
Do I have enough capital to start my business?
Have I secured my risk mitigation?
a. Have I consulted a lawyer for compliance and legal issues?
b. Have I consulted an accountant?
c. Do I have proper insurance?
d. Do I have a trusted Financial Institution?
Once these questions are answered, you are well on your way to business ownership success in any climate.
If you are already a Service CU member, give us a call, or drop us an email to schedule an appointment to discuss what options are right for you. If you are not currently a member, fill out our Business Membership Application online to get the conversation started.
Whether you are just starting out, or are a seasoned business owner, Service Credit Union and EverFi™, a financial education partner, have free resources at your disposal to make your business as financially successful as possible.