In partnership with Surex
Rule number one of being an entrepreneur: When things get tough, keep going. The COVID-19 pandemic has brought to the surface many worst-case scenarios for small business owners. They’ve lost revenue, laid off staff, and some have even had to close their business permanently. Still, there are ways to ensure the financial future of your business looks bright. Here are some actions you can take right now.
Set up an emergency fund
Saving for unforeseen emergencies isn’t just for personal finances. COVID-19 has shown us the importance of businesses doing it, too. Emergency funds are necessary to cover financial fluctuations in your business, such as a slow period, unexpected tax payments, economic changes, or all of the above. Unfortunately, not all businesses make this a priority. “It’s an afterthought. Businesses don’t consciously maintain an emergency fund because they’re more focused on growth or investment,” says Viren Parmar, financial adviser for the Toronto-based firm Karma Financial.
He advises small businesses save at least two years’ worth of business expenses in an emergency fund. It seems like a lot, but the pandemic has revealed that anything less may not be enough to sustain your business while allowing you to provide services, make payroll, pay bills, and generate take-home pay. Funds should be kept in a low-risk account that allows your money to grow and stay ahead of inflation, such as a money market fund or ETF. Avoid GICs, he says, since they have set terms and can’t always be cashed at the last minute.
Manage your employees carefully
Payroll is one of the largest expenses for small businesses. “It is a big cost to maintain wages and salaries. For businesses that aren’t able to operate during the pandemic, it might not make financial sense to keep their employees,” says Parmar. “They may have to temporarily lay off employees so they can take advantage of the Canada Emergency Response Benefit (CERB) or find other work. For businesses that can afford to open and are considered essential, it’s advantageous to keep your staff because it’s hard to find and replace good employees.”
Now’s the time to get insurance
If the pandemic has taught business owners anything, it’s to be insured. While it’s too late to get coverage for this current pandemic, you can still protect your business against future disasters. Parmar says it’s important for businesses to stay prepared, and that it’s not just outbreaks you have to worry about. Anything could happen: an employee gets hurt on the job, there’s a major data breach, a product causes bodily injury to a customer, a natural disaster damages your property, and so on. There are many different types of insurance to consider. Here are just a few:
Commercial general liability insurance: This is mandatory for some industries and protects you against accidents and property damage.
Auto insurance: If you have vehicles that are used for business purposes such as delivering goods, then you need commercial auto insurance. It will cover you in the event of injuries to your employees or passengers, as well as repairs to your vehicles. It’s not enough to just have personal auto coverage since driving a vehicle for business use carries different risks.
Business interruption insurance: This covers your fixed expenses such as rent, property taxes, utilities and salaries in case your ability to generate sales becomes disrupted by an insured peril, such as a flood, theft, or fire.
Invest in the right transportation
The coronavirus pandemic has changed how we get around. Less people are using public transit and ride-sharing services to prevent transmission. Even the Centers for Disease Control and Prevention has encouraged people to drive in their own cars and provided advice for employers: “If feasible, offer employees incentives to use forms of transportation that minimize close contact with others (e.g., biking, walking, driving or riding by car either alone or with household members).”
If you think it’s time to get your own business vehicle, you’ll need to choose between buying or leasing. Start by getting clear on the following questions before you decide: Will you need to drive every day, or only once a week? How much mileage do you plan to put on the car? How much can you spend on monthly payments? Don’t forget, you can deduct expenses related to the business use of your vehicles, whether you lease or buy. This includes costs you spend on repairs and maintenance, insurance, fuel, registration fees, and leasing costs.
Level up your bookkeeping
If your bookkeeping system is Excel, you’re most likely losing out on time, money, and efficiency gains. It’s important to keep a tight grip on your financials, from tracking incoming revenue to paying your bills. Not only does it reduce manual errors, it lets you see your overall financial picture so you can make better business decisions: Can you hire new employees? Do you have the budget to purchase new equipment? Which products or services are most profitable?
Parmar recommends Intuit QuickBooks and Wave, both of which have free or low-cost plans for small businesses. If you already have the software but your in-house staff still can’t keep up with your company’s financials, then it’s worthwhile to outsource the work to a professional bookkeeper. It costs more, but it’ll free up your staff’s time and mental energy, says Parmar.
Future-proofing your business with these smart, safe financial decisions will help your company survive and thrive no matter what it’s up against.