Building a Financially Resilient Company

Why not start with one of the hardest pieces of resilience to build? Why not eat the frog, as they say? (We’re sorry, Jiveney, we didn’t mean it.)

Finances are, of course, a vital component of building, maintaining, and growing your business. Entrepreneurs are often incredibly optimistic about the financial futures of their companies—if you weren’t, why would you even have started in the first place? But anyone with a business or two behind them will tell you that your finances (and that of your partners) can make or break your business.

You need to build your resilience here, first, as so many other parts of your resilience will be utterly destroyed if you haven’t created as rock-solid a financial system as you possibly can. Where to start first?

With failure.

Envision it. What if this incredible gamble you are taking did not work out? Or what if it did, but only after a much longer period than you’d really hoped? What would you do?

As Ben Carlson points out: Most businesses are pretty good at managing risks they can see. It’s often the blind spots that bring about the biggest problems. It’s time to start looking for yours.

Understand Your Personal Financial Situation

If you are walking into a new business venture with a shaky personal financial situation that would only be made more precarious by a one or two month drop in revenue—you need to rethink your strategy. If you, or your partners, run into personal financial problems, it absolutely impacts your business.

Your personal creditworthiness affects your ability to access financing. Especially with new and small businesses, financial institutions look past the organization itself, into the pocketbooks of the owners, to find the collateral and support they need to make your loan work. If you or your partners have skeletons hidden in financial closets, they’ll be jumping out and wreaking havoc just when your business is facing its largest challenges.

Unfortunately, it’s not uncommon for business partners to hide their personal financial problems from each other, and you may find that the person you’ve been counting on to be there through thick and thin is simply not that reliable—when it’s far too late. As we’ve told you before, being in business is very similar to being in a marriage. We highly recommend getting naked before the big day.

If you’re a bootstrapper, moving forward without loans or investments, surviving on your own savings, grit, and time, you will likely need a source of income from outside of your business for several years—yes, we mean years—before your business can properly pay you. That said, you can’t not pay yourself forever*.

If you can’t make ends meet, it’s going to impact your ability to run your business effectively. If you’re going into personal debt in a way you hadn’t planned, it’s going to sit in that corner of your brain, eating away at your productivity and management abilities until your optimism and strategic processing capabilities have disappeared entirely. If your spouse—or your partner’s spouse—is sick and tired of living on KD and canned tuna, then your business’ best before date just arrived.

Resilient business owners not only build up the finances that they need to manage through failure, but also ensure that they have multiple strategies on hand to deal with the unexpected. They also know that there is a point where it is time to call it quits—and they know exactly what has to happen to make that decision non-negotiable. (It’s probably when you run out of KD).

Understand and Manage Your Cash Flow

Many business owners, like you, are experts at doing their thing. At the same time, they (and you) may be pretty good with money. Alternatively, they (and you) may be pretty awful with money. There are many shades of grey in between. If you’re going to succeed, you need to figure out how to handle your money effectively, and when to call in the professionals to help you manage the things that are not hanging out in your area of expertise.

Get comfortable with money words like revenue, profit, and cash flow. Understand the differences. Revenue is the money that you bring in before you start paying bills, staff, taxes, and managing crises. Profit is the stuff you have left over. Profit is the stuff you get to keep. Profit is the bit that you really, really want. Being a multi-million dollar company does not matter one bit if it your profit is negative. Yes, the magazines and newspapers spend lots of time rewarding high revenue earners with ink, but you’re not in it for ink—no, you are not. You are in it for profit. Even if you are a heart-centered company that is changing the world (and we love you if you are!), you are not going to get any world-changing done if you are losing money. Profit matters, and you must make it in order to remain sustainable.

Cash flow is the amount and the timing of the payments you receive, and the expenses that you pay. That timing is crucial, and can make all the difference in the world. Little things like the due date on your invoice, or the structure of your multiple invoices, if that’s how you roll, can make a significant difference to how or if you can pay your staff on time and keep the lights on. Ensuring that the due dates on your invoices make sense with your payments out the door, and that you have a solid collections plan in place will keep external decision makers from sinking your ship. You don’t have to be a jerk about it either. A reminder email or phone call when an invoice is late is often enough to get good customers back on track**.

If you’ve never built a cash flow plan, now is a great time to learn how. Just like with your personal income and expenses, it’s important to build, review, and update your business budget on a regular basis. Get into it every month. Understand how your business works, and make adjustments as you learn.

Build a safety margin into your expense planning to adjust for potentially higher costs than you expected—you never know what might happen. Set aside money in an account separate from your operating account to cover annual expenses, such as accounting fees, insurance, and tax payments. Oh, and that sales tax that you have to collect on behalf of the government? Set that aside too.

Make it insanely easy for people to give you their money. Accept every single kind of payment you can, from credit card payments to email transfers to cheques and more. Build infrastructure into your payment system to allow for everything you can imagine and update it as often as possible. Whenever you ask for money, clearly spell out how it can be sent to you. List payment types on your invoices. Add a button to your website or digital invoice. Make the “due date” large and bold. Make it kindergarten simple. Preschool simple. Your customers should not have to guess or even think about how to pay you, or when.

Don’t like dealing with money or making those kinds of decisions? It’s pretty difficult to walk away from this inside your own business. You need to be paying attention to some or all of it but, yes, of course, you can get expert help. Your accountant, your bookkeeper, your CFO, and even your financial planner can all work together to help you make great financial decisions.

Getting resilient here may mean getting comfortable with words and concepts you don’t yet understand, opening your mind up to areas of business you really hadn’t wanted to deal with, and asking for expert help.

Balance Growth with Stability

We hear it all the time:

I can’t move my business ahead without hiring help, but I can’t afford to pay additional help until I’ve moved my business ahead.

Whether it is about hiring staff, investing capital, or marketing to that new audience, growing your business costs money. Getting caught between the rock of not-enough-money-to-grow and the hard place of not-getting-enough-money-unless-we-grow is a normal business pain point. Solving it is unique to every business, but here are a few things we’ve learned:

• Keep a handle on your burn rate. Don’t overextend yourself in the name of growth—many businesses run out of cash by hiring too many people too quickly. Of course, you don’t want to stagnate, but you also don’t want to overcommit the resources you don’t have. Start slow, test run new ideas as pilot or guinea pig projects, and understand what it really means to move in that new direction. Minimize the number of new projects you’re going to handle at any given time. Pay attention to your own energy and that of your team. Trying to do everything at once is a recipe for disaster.

• Plan for slow periods. If you haven’t had one yet, know it’s coming and make sure you’ve got enough set aside to deal with surprises. Pay attention to your track record—are there times of the year when your revenues and profits are higher and lower? Is it because of customer behaviour or something you’re doing internally? What does your financial “year” look like? Don’t let a surprise expense or lower revenue month jeopardize your ability to meet your commitments.

• Be good to your people and pay them as well as you possibly can. If you want loyalty and commitment from your team (trust us: you do), then you need to demonstrate that you value them in multiple ways, from pay to flexibility, to personal development plans, and much, much more. Build excellent systems that support new people, get them up and running as soon as possible, and help them move up and on in your business. High turnover rates are one of the many causes of business failure; hiring and training new staff eats up financial resources and brainspace. Take care of your people, and they will take care of you.

Build Recurring Revenue

You may not have known this, but recurring revenue is the wild and crazy dream of all businesses. Imagine just knowing that a certain dollar amount will come in the door each month, as long as you do that thing you do as well as you do it, with consistency. That’s a great business.

Getting there can be pretty tough, especially if you prefer projects—you’re certainly not unusual if you do. But consistent money comes from consistent work, and building reliable, regular income is one of the ways your business becomes and remains resilient.

For you, this could mean turning services into products. Perhaps you bill by the hour but you’ve found your income limited by your own capacity to work. Is there another way to sell your expertise, turning your one-to-one system into a one-to-many, or even finding a way to do something only once but package and sell it over and over again?

It may mean taking a good look at the people who already love what you do for them. What else do they need? Can your business, or another business you could partner with, provide it? Get creative and build partnerships with vendors who sell complementary products and services. Invest in building relationships with the people who already work with the clients you want, and compound that by making it easy for them to send you business.

Finally, never forget the customers who got you here. Pay attention to them. Take amazing care of them—loyalty cards are so popular in Canada because loyalty is money. It’s a lot more expensive to find new clients than it is to keep and grow the ones you have.

Financial resilience takes time, energy, regular review, and vulnerability to build. Without it, you will sink. Take your time, take deep breaths, and face your finances head on. Ask for help, and build plans. The next time you hit an obstacle, you’ll snap back in stronger shape than ever before.

*We also meant that double negative. When you know the rules of grammar, sometimes you’re allowed to break them.

**Yes, of course, we do that.