Don’t Ignore the Lesson 2020 Taught Us
If you are like most people, you are eagerly awaiting the time when we can put 2020, COVID, and everything that came with it, in the rearview mirror and never think about it again. As tempting as that sounds, there were some valuable lessons for both individuals and businesses that will continue to serve us and help us be ready for the next unforeseeable event. Here are three steps to help you prepare.
Know what you are working with
When you first have a revenue problem or are planning for a big expense, what is the first thing you do? Gather data. Some decisions are difficult to make – but doing so without current and accurate data can make it just that much more difficult. Keeping up to date on your personal and business financials and cashflow is the first step to making a quick and “best” decision. When we suddenly shut down due to COVID, those with up-to-date records were ready to analyze and plan. Those without likely needed to spend valuable time gathering all their records and updating their financials before they even had the data necessary to plan. Time is often of the essence, and not delaying the plan because of a backlog in bookkeeping can be a lifesaver.
What does this mean to you? On the personal side, it means having either a bookkeeping system of your expenses or having adequate information to easily and readily determine all your regular and nonregular expenditures. For a business, it includes having up-to-date financial records. It is also helpful to have a complete and detailed budget connected with your business plan for the next 12 months.
Analyze your financial situation
Next, analyze your financial data. You know what you bring in and what you spend, but do you know what expenses are fixed versus variable, and for which expenditures / items you have options in alternative providers? Do you know which costs you can delay, and which you can’t? Knowing the answers to these questions will help you with your cashflow management. Being able to adjust your outflowing cash when the inflow suddenly drops is essential. Being able to think through this process and research alternatives for certain outlays now and not in the middle of an emergency will assist in having detailed, well-thought-out information.
Create a plan
Contingency planning is the final step. Give yourself two scenarios, one where the situation is bad and one that is a worse-case situation. Now plan what options you have for each scenario. If you believe bank lending is going to be a necessity or an option, do you already have a contact at the bank you are working with? Do you have a home equity line of credit already available on your house? Are you monitoring alternative providers for the items you need, perhaps using them occasionally so that you are already familiar with their products and they are familiar with you? How much emergency cash do you need to keep on hand to help you through a temporary cashflow crisis? Do you have plans in place if your traditional revenue generation streams get cut off or are severely reduced?
We would like to think that what we have been through in the last two years is an unprecedented event that we’ll never see again. But the truth is, we have seen it before and we will see it again. It may come as cancer, a major car accident, losing our job (or major client), needing full-time nursing care, etc. It is not the name of the event we are planning for; it is the financial impact that event will have on you and your business.
Now is the time to think about what you can do today to prepare for the unforeseen. From bookkeeping software recommendations to forecasting and budgeting, and everything in between, JCCS is here to help you prepare for the future.
* This article is not a complete listing of all the details related to this tax topic and you should contact your CPA for a more detailed discussion regarding these items and how they may apply to your specific situation.
Photo credit: Scott Graham, unsplash.com
