Want To Build Financial Resilience And Weather Economic Challenges? 3 Simple Things You Need.
Many of us entrepreneurs started our businesses to be in control of our financial situation. Running your own business is one of the best ways to ensure that you are not at the mercy of a corporation that could fire you with little notice, leaving you scrambling to pay the bills.
However, entrepreneurship brings its own set of challenges such as finding new clients, managing your business finances, and more. This requires astute financial planning and being prepared for anything that may come your way. Thankfully, there are some steps you can take to ensure that you are able to weather economic challenges and build financial resilience as an entrepreneur.
In this article, I’m sharing three simple strategies you can implement in your business to be able to deal with any financial challenges that may come your way.
1. Set Up An Emergency Fund
While we all hope that things will be smooth sailing, things can sometimes go wrong. Perhaps you have a medical emergency that prevents you from being able to work for some time. Maybe you spill coffee on your laptop and suddenly need to buy a new one! Or, as we all saw in 2020, a global pandemic could break out.
The reason is less important than the outcome – that you may have a sudden and urgent need for cash. In these situations, having an emergency fund can be a literal lifesaver.
If you are a first-generation entrepreneur, you may not have this set up in your business yet. However, there is no better time than now to start putting money into your emergency fund. If you do this consistently, you will be able to put aside a tidy sum for when the need arises.
But how much should you put into your emergency fund?
This becomes a bigger question of budgeting for your business finances. The 50-30-20 Money Framework is a useful tool that you can use to determine how much to contribute towards your emergency fund.
Under the 50-30-20 Money Framework, you would take 50% of your business profits as your owner’s pay. 30% would be set for taxes and the remaining 20% would be to reinvest into your business and/or keep as profits. You could also make a contribution to your emergency fund from this 20% and continue doing this consistently until you have about three to six times your monthly business operation costs put aside.
Learn more about how to implement the 50-30-20 Money Framework in this special Masterclass. Click here to get the replay.
2. Diversify Income Streams
“Don’t put all your eggs in one basket.” – Miguel Cervantes
It feels like a cliche but that’s because cliches have a grain of truth in them. When it comes to building financial resilience and being able to weather economic challenges, this saying is absolutely true.
The nature of our economy is such that often when certain sectors are experiencing a recession or contraction, other sectors are experiencing growth. During the pandemic for example, the sectors of Airlines; Automobiles; Energy Equipment & Services; Hotels, Restaurants & Leisure; and, Specialty Retail took heavy losses, but industries like E-commerce, Healthcare IT, and Logistics saw significant growth.
There are countless other times in history when similar trends have been observed, lending strength to the idea that there is value in diversifying your income streams. You can start by thinking about diversifying your income streams within your business. One way to do that is to offer different levels of service. You may have a low-cost course, a mid-tier membership program, and high-touch done-for-you services at a high level of investment. This way, your revenue is not tied to a single offer.
Outside the scope of your business, you may consider investments in a varied portfolio or creating rental income as a way to diversify your income streams. Be sure to consult with your trusted financial professional to weigh the risks and rewards before making any major financial decisions.
By diversifying your income streams, you can almost guarantee that you will be (at least somewhat) protected from any massive upheavals in the economy, giving you buffer room to pivot or rebuild your business as necessary.
3. Know When It Is Time To Pivot
You may have heard the expression that “winners never quit and quitters never win” but I would like to offer an alternative perspective – winners know when to quit.
Yes, entrepreneurship is hard. Yes, there will be moments in your business when you feel like throwing in the towel. And yes, there is value in perseverance. However, knowing when to pivot in your business or move into a new space is critical for you to be able to build financial resilience and weather economic challenges.
Too often, I see entrepreneurs who are overly attached to their businesses and refuse to shift gears regardless of what the data is telling them. This happens to the best and biggest businesses as well – we all know the tragic failures that powerhouses like Kodak, Nokia, and Blockbuster faced after refusing to adapt.
We can learn from these mistakes and incorporate these lessons into our own businesses. Establish periodic checkpoints in your business to evaluate the health of your finances, consult with experts (like a coach or strategist), and do not be obstinate in the face of real data – this will only run you into a loss. Knowing when to pivot or change strategies in your business will help you deal with any challenges that come your way.
Set Yourself Up For Success
Entrepreneurship is no walk in the park, especially in uncertain economic conditions. By getting your financial ducks in a row, you can prepare for unexpected challenges and set yourself up for success.
But knowing how to get the back end of your business running smoothly isn’t that easy. That’s why it can be helpful to get some expert help. The House of CEO Membership was specially designed for first-generation entrepreneurs like you – to help you build a solid financial foundation for your business that can weather economic challenges. Learn more and join the House of CEO Membership today!