COVID: but what about after this is all 'over'?
Apr 01, 2020
Are we there yet?
Nope, sorry my friends. We're at the start of the journey now and yes, there is a long road ahead. I think this COVID stuff is going to impact every human, it is just a question of when and to what extent. I encourage you to be sensitive to one another through this - we're all on a different emotional timeline with this, and empathy is what will get us through to the other side. Also, pulling our heads out of the sand.
Life is going to be very different for the next 6 weeks to 6 months, with long term economic impacts probably to be seen for years. I hate to write this sort of stuff - I am a 'cheerleader' and an optimist and love to just give the motivational chats. But, sometimes we need to have these hard truths put in front of us. Raw and real. We're The Real Thiel after all!
So, we know it will be tough. Cool. What can we do about it? How do we be as prepared as we can be? I personally have no way of curing COVID, but I can help you be ready financially.
Where am I now?
Start with doing a personal and business 'stocktake' of sorts:
- What cash do we have in the bank?
- What income are we expecting (it might be none...)?
- What are our direct debits, when are they due and how much are they? Make a big list, but no need to cancel everything just yet.
- What are your other regular bills (groceries etc)?
- What other assets do we have that we could sell or use if things get tough?
- What debts do you owe? When? How much? Maybe give your bank or other lender a call just to understand what your options are if things get worse.
- What are you good at? what are you proud of? what secret skills do you have that could be put to use right now?
- What are the Government support measures in place? What might you be eligible for? How and when do I apply? When do payments start?
Now we know where we start from. This might be a dismal picture, or this might be a position you are actually pretty proud of and that gives you confidence or reassurance. Either way, I am proud of you for collecting this info and facing it head on. Knowledge and numbers can give you what you need to take the next steps.
Talk to someone.
Get yourself a financial fitness buddy. Be accountable to each other. This needs to be someone you can trust. Organise a weekly or monthly check-in where you will report to each other your actual results and how they compare to your expect and forecasts.
My next 4-6 weeks
Next, have a little cash flow plan for the next 4 to 6 weeks. Sometimes we hear terms like cash-flow forecast and get scared because we don't have formal training in this. It's ok! It doesn't have to be perfect. Also, there are people like me who are here to help you.
For a simple one, I recommend you have your weeks listed across the top. Number the columns as weeks 1, 2, 3 and so on.
Then down the side (rows) have the INCOME items - like wages, centrelink, business income etc. Have a total line which is the sum of the income items that week.
Follow this down the page (rows) with EXPENSES - include everything you might spend money on, like rent/mortgage, memberships, subscriptions, food, alcohol, electricity etc. Have a total for these too.
If you work as a sole trader you could smash all the business and personal stuff together for this purpose, or have a separate business cash-flow forecast and then decide on an amount that the 'business' will pay to you.
At the very bottom, total IN minus total OUT = net cash flow. Ideally we need this to be positive or at least net to zero.
If it doesn't, then we need to think about delaying expenses, drawing on savings to top us up, increasing income if we can, applying for more help, borrowing from friends and family if that is an option, or calling in the big guns (accountant/adviser/financial aid) for help.
Knowing what our short-term situation looks like might be confronting, but also means you can put things into action now. Be ahead of it.
A lot of the uncertainty and anxiety comes from not knowing when this will 'end'. The challenge might be that it is months or years until we experience something like 'normal' again. I have not lived through a recession before, so I am drawing on my more senior mentors for how we shift our personal and business activities to address what might be our 'new norm'. I also totally understand some of these ideas won't be positive to you.
I've broken down my 'recession' ready ideas into 6 sections (some are pretty obvious, but sometimes we just need to consciously think about them):
- Minimise the OUT
Go through your common expenses and cut back. Maybe it is ordering a wine not an espresso martini for now. Maybe it is not eating out... not that we can right now, but you know what I mean. What are the luxuries?
If things get really tight, the definition of 'luxury' gets tighter too. Keep that list of expenses up to date so you know what your commitments are and what you can cut back on. You might need to renegotiate on leases even.
Then, each week or month, actually do a check-in (with your financial fitness buddy). Keep yourself in the know.
- Maximise the INS
Anywhere that you can, increase the money coming in. Some of you are laughing at me because this might seem ridiculous right now. What I mean is, keep in contact with your own clients and make sure you know who might be finding it hard to pay you. Consider your payment terms, deposits, payment plans, money in advance etc. Perhaps you can introduce a discount for pre payment? If it gets bad, then maybe we have a 'package' (for service/products) where the customer pays what they can... I don't love this idea, but I am putting it out there incase it applies to you. The idea with all of this is to maintain your profit margin as best you can.
This also means looking at other income sources. It might mean Government support for a while. There is absolutely no shame in this. It is there for a reason and if you are eligible, then make use of it to soften the blow.
- Control debt
Hopefully you don't have too much unhealthy debt, but any you do have, try to consolidate it. The Barefoot Investor (fav book... you have time now, so read it!) recommends paying off small debts first. Get as many ticked off as you can. Make yourself a little plan for repayments. Renegotiate if you can. As much as possible, avoid credit card debts unless you know you can make those repayments on time. Have a chat to your lender and know what your options are.
- Be proactive
As your accountant I obviously want to see you get on top of your obligations with the ATO, but this IS also an important part of you feeling less overwhelmed and weighed down. I recommend you reach out and get help. We can chat about payment plans for paying me for my services.
Set yourself up with a tax savings bank account and put money aside each week for your GST and/or Income Tax you might need to pay at the end of the quarter and year.
Keep the books as tidy and AS up to date as you can. This helps me to help you, in the most efficient way I can, and means you have accurate data you can rely on when you really need it.
Review your accounting software and categories and have them ready for COVID stuff - like more refund accounts, bad debt expenses, government bonuses received etc.
Review your auto-invoicing and emails so you don't accidentally be insensitive to others (your own clients) who might be having a tough time too. Open and honest is the way to be with each other.
Let's be real, there are very few of us who will be aiming for much more than just surviving this COVID (from a literal health perspective and from a financial sense). This is a good time to tee-up a chat with your accountant. Plan your financial fitness buddy meetings to be often - staying on top, planning cash-flow for a few weeks/months out, and holding yourself accountable on actual results is key.
You might also like to think about your client profile and whether they are likely to be 'recession resilient'. Look at your current offering, business model, prices etc and consider if this is the right offering for our new environment. You are a creative person, so get creative! What can be done differently, or better?
A stressed brain struggles to create. Fair enough too! But there will come a time WHEN you feel more calm and ready to think about the future. An opportunity might present itself for you to be BOLD. Perhaps you shift, pivot, diversify, invent, and up skill. Imagine and redesign your business and your life. If you have the means, investing in marketing, setting higher prices, and targeting the market/people that have not been as affected might be an opportunity for you. If you find yourself coming out the other side in a positive position, there will likely be others around you that have a different story to tell. You might be able to hire them as contractors or acquire their businesses and give them a lifeline at the same time.
You are the most incredible, imaginative, creative, loving people on this planet. Your brains are built for this. You've been given a challenge, sure, but once you are ready, give yourself the brief, the parameters, the limited resources... your beautiful brain will get to work.
What I love most about this experience is seeing how much we are a community - let's develop that and share our ideas, connections, success stories, links, knowledge etc. If you have anything you want to brainstorm with me, or ideas you want to share with me or others in my community, then please get in touch. We're stronger together!