To say we are living in a new normal is a drastic understatement that insufficiently describes what we all are facing right now. These are scary times, for our families, for our colleagues, and for our businesses.
In the coaching calls and Accelerator meetings I have had (all virtually, don’t worry!) there is one thing that I ask our members to do first: figure out your monthly burn rate immediately.
Your monthly burn rate is how much money goes out the door every month.
FOR SMALL BUSINESS OWNERS, THIS IS THE FIRST THING YOU SHOULD BE DOING THIS WEEK AND HERE’S HOW TO WORK THROUGH IT.
As I mentioned, your burn rate is how much money goes out the door every month. That means salaries, rent, professional memberships, entertainment expenses, everything. Total it up.
The next step is to figure out how to cut 5%-10% of those expenses immediately. Are there contractors that can work fewer hours? If you are now working remotely, can you ask your co-working space for a temporary rent cut?
Obviously, with social distancing in place, you will be able to cut back on entertainment expenses as all of those networking events have been cancelled and your coffees and lunches are now online meetings. Were there investments you were planning to make in your business that can be delayed? Maybe right now isn’t the best time to re-do your website. Once you’ve made the list of what you can cut, total up how much that would be in monthly savings. What’s left is your new burn rate – the bare minimum you need to keep your business going.
The next step is to try to estimate (I realize this is REALLY hard right now) what your revenue might look like in April, May, and June. In our Accelerator meetings, we estimated a 30% drop every month.
The key question to ask yourself here is will this new, lower revenue cover your new, lower expenses?
If the answer is no, then you need to cut more expenses, figure out ways to bring in more cash ASAP, or ideally, do both.
Going through this exercise will be painful and scary but you will feel more grounded in reality at the end. You will know exactly what financial picture you are facing and it will help you build your strategy to move forward through the crisis. This will end at some point, I promise.
The goal right now is to make sure your business is still here when this is all over.
As always, we at Her Corner are here to help you in any way that we can. Please reach out and we can hop on the phone or Zoom to make a plan.