As we closed out the 2017 hurricane season here in Florida (and it couldn’t end too soon!), home owners and business owners were still digging out from Hurricane Irma months after the storm came and went. The wide spread damage makes most people stop and think about how quickly things can change, almost in the blink of an eye.
The same is true with financial climates. One day the markets and economy are humming along and the next day the world as we knew it has changed. The customer that you counted on can no longer pay his bills because he’s out of money and about to file bankruptcy. The project you were counting on to bring in your monthly or quarterly revenue has been put on hold. If you aren’t prepared for these events, they can end your business almost overnight.
So, how do you prepare for unforeseen financial disasters? Here are three steps you can take to make sure that you and your business are prepared in the case of a financial emergency.
- Build a budget. A budget will help you dive into the details of your current business as well as determine where you want to go in the next year. Additionally, it can point to potential problems you may have in the future, such as one customer bringing in the lion share of your revenue, only having one vendor provide a majority of your product, or not having the right mix of employees to handle the current and future workload.
- Save some of the profit. Similar to your personal emergency fund, you should be putting a way a portion of the business’ net profit away to cover when things are slow or payments will be delayed due to the timing of a contract (but there are still bills to pay and employee payroll to make!).
- Review your financials at least quarterly. Most small business owners only review their financials at tax time, when they send the reports to their accountants. The more often you review your financials, the sooner you will be able to spot problems and correct them. It’s easier and faster to fix a small problem than wait until it’s almost destroyed your business.
So, how prepared is your business to manage the ups and downs that are bound to occur?