This post is for anyone who has to make decisions about budget for your business, whether that business is a one person entrepreneurial endeavor or a small business with dozens of employees.
Let me be clear up front that my three suggestions will not fall in the “three easy things” category. Thinking about and managing a budget is difficult and stressful, especially when things go wrong and your income decreases.
So read on knowing that these suggestions are designed to help your long term sustainability and not your short term happiness quotient.
There are very few universal statements that can be made about businesses except one: no one likes creating and managing budgets. If there’s one person out there who loves to roll around on top of a bed covered in financial printouts as if they were rose petals, I’ve yet to meet them.
For the rest of us, budgeting is hard because it requires us to make future assumptions about our income and expenses. For large businesses with steady cash flow, this may be easier. For a one person boutique or a smaller business, this can be both frustrating and dangerous because your cash flow position can change very quickly at any given moment.
When income takes a nosedive, it’s common practice to start cutting expenses. Money is not infinite. If you have 100 dollars to split across 5 needs, each will get roughly 20 dollars. However, what some businesses do is drop marketing altogether and split their 100 dollars across the remaining needs. That’s an unsustainable position for growth.
In my experience, marketing is the Ned Stark of budgets. For those of you who don’t watch Game of Thrones, Ned Stark is one of the key characters that puts the story in motion. It’s his sister’s kidnapping that brings on the war that is the foundation for the entire show.
Ned is the ward of the North. The head of one of seven kingdoms that all report to the King. He is loved by his people, feared by his enemies and respected by both. His strength, character, honor, bravery and heroism is the linchpin that holds the kingdom together in a delicate peace.
Then he’s killed. And then everything unravels. Just like that.
Just like your business getting that early morning phone message that says, “We’re going in another direction and won’t be using you any more.”
In a split second you go from the whirlwind of running your business to…
…hemorrhaging blood from your headless corpse.
Ok. So let’s fix that.
#1 Have A Budget
First, have a budget. Chances are if you’re reading this and you run a business, you don’t have a budget. Or at least don’t have a clear one. You need to do that. You need to understand where your finances can bend and where they will break. Not knowing this ahead of a disaster will inevitably lead to you having to hack and slash at your expenses in order to normalize your cash flow. That’s very reactive and at that point you are not in control.
A better approach would be to do the following 4 things.
- Build a report of your income. This is straightforward. Make a list of all of your customers and what they pay you.
- Eliminate unprofitable clients. Not all customers are the same. Some customers provide income equal to the value you provide, and others provide less income than the value you provide. The details of this are a whole conversation on its own. Suffice to say, if you are working hard to give away your product or service for less than it’s worth, either adjust your rates or cut that customer.
- Decide what your necessary expenses are. Make a list of your expenses and decide to cut the unneeded or unwanted pieces. Did you sign up for a service three months ago and realize it hasn’t given you any value? Cut it. Did you sign up for a free trial somewhere along the lines and forget to cancel it once it converted to a paid account? Cut it.
- Make a kill list. After you know what you’re spending and why, comes the hard part. You have to make a kill list. A kill list is a check mark on your expense list that give you a plan as to what gets cut and in what order when the need arises. This gives you a plan of attack when the unfortunate happens. When you lose a chunk of revenue, you’ll be able to quickly adapt and control the bleeding.
As a side note, it’s important to know which of your expenses are tied to contracts. You’ll be able to cut some expenses immediately. Others may require a certain number of days and others may be fixed based on a contract. Knowing ahead of time will make your life easier.
#2 GTD Like A Mofo
Make GTD a part of your business process. GTD is David Allen’s paradigm for balancing business and life by managing the things that you need to get done better. I’m going to get into a discussion about GTD in a future article, but for now, the relevant part is that what you may consider to be a single project may very well be a collection of many smaller projects.
By thinking this way, you may be able to continue certain tasks without putting entire projects on the chopping block like Ned Stark.
What? Too soon?
Ok, so let’s put that in perspective. Let’s say you’re spending money on a website and you suddenly don’t have the cash to sustain the project. You could just cut the whole thing and be done with it. You’re out whatever you invested thus far with nothing to show for it.
Or, you can break that project out into smaller projects. For example, the copywriting may be a distinct project, the design another and the development yet another.
In this scenario, you can cut the development and keep the copywriting. You may not have the website to put that copy on, but you can use that copy to improve your profiles on LinkedIn or punch up your social profiles or even utilize in email campaigns.
This will keep your marketing gears spinning while reducing your costs.
#3 Build Better Pipelines
So this is probably the most important plan that you can put into action, which is to commit to increasing your efficiencies using pipelines so that you can output the same volume of work with less expense.
Along the lines of GTD above, having pipelines for every activity within your organization and tracking those pipelines will allow you to continuously refine your internal processes so that you can do more with less.
In an ideal scenario, when disaster strikes, you can simply heighten your efficiencies so you don’t have to cut your expenses. But this isn’t the make believe world of Game of Thrones.
Here in the real world, having well defined pipelines allows you to understand which processes are profitable and which aren’t. Do with pipelines what you did with your budget: identify which pipelines can be cut and which can be paused.
Some pipelines can be put on pause until later. For example, let’s assume you manufacture chocolates and you produce new packaging every three months. First you develop a pipeline for that so your development process is as efficient as possible. When income goes down, that pipeline can go on pause assuming you can continue to be sustainable without new packaging for an extra quarter. When your income rises again, that pipeline can be reinstated.
So there you go. Those are my three suggestions, but they are certainly not the only ones. For example, hiring a good accountant to review your financials or hiring a bookkeeper to give you an honest, objective opinion are also good ideas. And that’s the point. There are lots of good ideas for how to manage a crisis. Mine may not be a good fit for you. It they’re not, thrown them out and find ones that will, but try to have at least a rudimentary plan in place before the storm hits because otherwise, you introduce the possibility of making poor reactive decisions.
I am Ralph M. Rivera.