Managing Business Costs with Confidence During Uncertainties

Pens and coins on financial documents illustrate the intersection of planning and profitability in business management.

Uncertainties, fluctuations and raising costs are common concerns for a business owner. Will they get better and will we see some sunshine? Well, that depends on a lot of things. 

A better question would be, how to manage business finances with confidence during low times?

1. Having a clear budget to start off with

You should have a clear budget - a list of expenses of your business month on month which you review on a monthly basis. A clear budget for your business is like a lighthouse, it guides you month on month, gives you a foundation to work on, gives you an idea on costs you can cut down on and essential expenses you need to continue funding for even during tough times.

[But how do you start with creating one if you have never had a budget? Refer to the article Budgeting 101 for small businesses to get a step by step approach to creating a budget from scratch]

2. Difficulties of Seasonal businesses

Seasonal businesses are those which have notable and highly fluctuating sales over a period of one year. Some examples include travel and tourism industry, hospitality sector, food and beverages, event planning. Sales in these businesses depend on season, spending patterns and changing priorities of target audience during the year. Sales could be high during summer and drop during winter; or sales could be high during the holiday season and drop during other months. 

The biggest advantage you have is that your business makes massive sales in some months of the year. Utilise that - save your profits you make in those months to utilise it during months of low-no sale. This gives you peace of mind even with a highly fluctuations sales pattern.

3. Managing costs during uncertainties and tough times

Now the elephant in the room, any business can be hit by uncertainties like, raising costs, tax burdens, a changes in the economy, changes in the market. Most of it is not in our control. While a lot of these would also require a strategic review of your business plan, here we are focusing on the money aspect. 

The scenario we are talking about is where the sales of your business is hit owing to factors not in your control, and the period of low is uncertain. In such circumstances, it is true that you would have to take up a stricter review of your budget and expenses. You will need to review every line item on your budget and answer a couple of questions – 

• What would your business lose if you don’t spend that one expense? 

• Is it a massive lose that could derail your business?

• How much does the impact of the expense matter to you and your business? 

• Or is it something that is necessary for basic functioning of your business? 

I often see business owner take up a sabotaging mindset of ‘not wanting to spend a penny on any services for their business’, thinking this will make their business ‘cost efficient’ and hence earn them ‘more profits’. Trust me, that mindset is more harmful for your business. Sometimes what looks to you like saving costs could actually be making your business quietly lose tons of money in the background, which is completely invisible to your naked eyes! 

I can give various examples of how businesses focusing on a cost cutting mindset which lost massive amounts of money in the background for not spending on services necessary for a growing business. Reasons like – poor systems, unable to track profitability of services/products, poor protection, poor quality of human resources and pilferage, are common reasons of invisible loses.  

Remember – you need to spend to grow your business!

So the question that you as a business owner should be asking, is NOT ‘how to do I run a business without spending on anything/how do I get it done without spending a penny’. The question should be –‘how is it going to help my business?’, ‘what would my business lose without this expense?’, ‘Am I clear on all the alternatives available to me’, ‘What is the focus for this quarter/year’, ‘When should I be looking at spending on that expense’

Being clear on why you are spending gvies you a great deal on control on money.

And this begins with - Values. 

I will leave you with one homework – Work on your values. 

• What do you stand for and believe in?

• Why did you start this business? What got you into this?

• What is the legacy you want to leave behind? 

• What are you  not willing to compromise?

• In line the above, what are the goals you have set for you business for this year?

  
  

For more prompts the DIY toolkit to sort your business finances today talks more about values and some activities to get you started. 

Written by,

Mrudula Muralidharan

Finance coach and Founder

Million Goals