As accounts and business mentors, we get asked 2 questions more than any others:
“How can we better manage cash in our business?”
and
“Where can I reduce spending if I have to?”
Recently, there have been lots of questions raised about uncertainty brewing in markets, the economy and its stability. You’ve likely come across an article or video (or a few) like I have, talking about these topics and considering what’s coming next.
Here are some of the questions we’ve heard being raised over the last few weeks, prompted by recent global conversation:
How can I cut back my spending without impacting the business?
Where should we be spending?
Can you help me cut my spending?
Should we be hiring in the team right now?
How can we strengthen our growth in this period?
Should we be reviewing our business plan now?
How can we protect ourselves best during a recession?
These are all completely valid questions and totally understandable – it’s sensible to take a step back to review and analyse, but where do the answers lie?
There are always businesses that move through and come out stronger during less buoyant times (we saw this through the pandemic), and I believe that it’s largely due to how leaders make decisions during these times and what they choose to focus their resources on.
There are some core key pillars that underpin stability, forecasting, spending and growth optimisation in these periods, so today we’re sharing our top 9 guidelines on how to approach these challenges and make those tougher decisions with clear strategical direction – without the decision-fatigue that often comes with it.
9 Questions every small business should ask to strengthen their business model
1. What are the right business goals for us at the moment?
Look at where you want to be in 2 year’s time and track back from there to get your 1 year roadmap, and then detail out your 90-day plan. Look at what the short-term wins, mid-term possibilities and long-term trajectory sit.
Whatever your plans are, focus on what do to now in the next 3 months to push the needle forward with sales, brand awareness and establishing your business in your industry.
In a lot of cases where there are numerous goals which spread the team and resources thinly, a strategy to focus on less is best to simplify. Likewise, when you’ve been successful 1 or 2 main areas, it could be time to amplify.
2. Where can we – and where should we – cut spending?
Cost-cutting is often most easily targeted at soft budgets like marketing, recruitment and service functions (IT and finance). This disconnects the value and impact of spend vs short-term cashflow gains and can be very counter-productive.
It’s helpful to start with what the certainties and uncertainties are, making sure the certainties are accounted for. This could include higher interest rates and inflationary pressures on wages. Once you include everything outside of your control as a business, you have clarity on what you can control and see from there what your spending and cash position looks like.
The most effective approach is to take all your spending items and score each one on its impact. Everything you pay for must have a high score for productivity, people and revenue. Look at its ability to:
- Encourage, enhance & improve productivity & efficiency.
- Support mental, emotional & physical well-being & health.
- Combine multiple functions. If you got rid of X, would there be anything that X did that would need to be replaced?
- Be where your existing & potential customers are at the right time, with the optimum moment-to-share message/marketing/content.
- De-risk and/or diversify your portfolio.
- Retain key talent, knowledge and expertise. Replacing staff is often much more costly than finding ways to retain them.
- Scale as your business does. Systems & processes that can adapt quickly to change see better results in both business performance & company culture.
3. Where should our numbers be and how do we know what to benchmark against?
While industry data is useful and you can get access to insights through research or possibly peers and mentors, the best data to benchmark against is your own.
Look at the previous month and the previous period for marketing, sales and performance to get a ‘you’ view of what’s happening across the business and identify where any gaps or potential gaps might be hiding.
As Futrli Advisors, we use Futrli to generate instant 3-way budgeting, prediction and reporting, giving a view of the past, present and future of the business. We use this platform for ourselves and also distribute a dashboard snapshot within our monthly reporting as guidance and regular updates for our clients.
A solution like this helps stay on top of your money numbers as well as offers complete flexibility and visibility when adapting to changes.
4. Where might we be exposed right now or at a medium or high risk point?
Looking out for the risk signs helps you tackle any challenges head-on and before they gain much momentum.
Having a regular process of data analysis to track activity is one of the best ways to do this, but it’s also through your team where you can gain valuable insights, from the staff on the ground to your leadership team.
Training and mentoring staff will feed back insights into the business and open up opportunities for improvement and growth which is key to continued revenue.
It’s also important to look at your business model structure and see where the risks might be there and understand how you can de-risk that part of your business.
For example, if all of your revenue is coming from one niche/industry, a low number of clients or they can all be impacted by the same event or change, it is important to think about what changes you could make to your services and business model that will spread out your avenues for revenue and de-risk your current position.
Diversifying your portfolio and offerings can not only help you de-risk, but it can also help your scaling plans, too.
5. When should we be thinking about funding or investment?
If you have concerns about cash flow, jumping to raising or borrowing money is not always the answer, or right for your business.
The first thing to look at what is on your roadmap, then look at what needs to be spent in these most essential areas, so cash decisions are not segregated from the important commercial ones.
Looking at your business performance data can inform what goes into your roadmap so you have confidence in where the spending is going – and get a good idea of your projected financial results and overall outcome.
Once this is established, you can take a tactical look at what that does to your cash flow, spending and resources and make decisions based on commercial reasoning as well as financial stability.
6. Where do we go when we know we don’t know?
If you aren’t sure about something, there is always someone else who is! That person could already be in your team or in your network, so ask your trusted peers if they know, or if they know someone that might.
Running a business can feel lonely and stressful at times, and keeping connected with people who can support you when you need it and asking for help before this feels too heavy alleviates this – an important and essential part of a business owner’s journey.
7. If I do invest now, when can I expect to see a return on my spending?
For many small businesses, spending on new hires, staff and marketing means they invest a large portion of profit before they see any immediate cash results.
New hires need time to settle in and hit the ground running, and marketing campaigns need time to gain traction on or offline.
The way to optimise these investments from the start is to be clear on:
Why you’re investing and keep focused on that at the core of all activity around it
Create detailed briefs and share them with everyone involved
Identify the quickest route to the result you want, with no drop in quality
8. How do we keep the team connected when some are worried about what the future looks like?
People power businesses – whether you’re in a hands-on, client-facing creative business, developing & selling tech and software or providing products to your customers.
Establishing a culture of openness where people can talk about these concerns helps keep them away, avoiding the undercurrents that infiltrate productivity, staff happiness and innovation.
Some ways to do this are:
- Educating outside of business specifics and/or industry. For instance, if there is a concern about the economy, invite an expert to hold a masterclass or Q&A as part of staff training and development.
- Speak daily. Whether it’s a stand-up, lunch meet or workshop, build a connection network so everyone gets heard. Leaders connect with their key members of staff, they connect with theirs until everyone is connected to someone else within the same business network.
- Share the vision in detail. It’s important that everyone is aware of the vision and direction of the company, and to do this, it’s important to share more than numbers. In addition to goals and figures, share the deeper strategy and tactics, including why you are doing things that way. This promotes confidence in the work and clarity of action.
9. Other than external financing, what’s a quick way to get cash in my business?
The quickest and most effective way to get a cash injection without some type of funding is to identify the piece that is working well, and double down on it to make it work really well.
This is simplifying to amplify, and by doing this it increases revenue – it happens quicker than other strategies because it’s a proven route for sales. The key here is to focus, improve, and systemise. Once this is working well, then you can look at how it can scale further.
Feel unsure about your next steps?
If you’d like to talk it all out with someone, remember we have complimentary slots each month in our 2022 Planning Clinic where we provide advice and guidance to start ups, scale ups and SME’s.
Book a complimentary 30 minute call with one of our Senior Charted Accountants.
Would a guide on which top money metrics to track help you in your business decision-making? Here’s our guide to 9 Essential Money Metrics to track for scale ups.
Main Image Credit: Mark Fletcher-Brown
