It is one thing to grow a business, and it’s another to grow a financially resilient one. The fact that you’re reading this article tells me that either (a) you’re a small business owner who wants to be one of the 50% still in business after 5 years, or (b) you’re thinking of, or in the midst of, founding a business and you want to build in financial best practices from the get-go. Either way, pat yourself on the back. You’ve already set yourself apart from the pack by knowing that “growth” and “resilient growth” are not one and the same.

How do you build a financially resilient business?

Your business likely won’t fall apart with the first strong gust of wind, whether it’s competition, economic headwinds, or staffing troubles. The U.S. Small Business Administration’s Office of Advocacy reports that whether or not a business survives has little to do with a negative economy. The practices that you can put into place to build financial resilience are crucial to growth regardless of the climate outside of your business.

Can your business weather the storms?

Below are our top three tips for building financial resilience. One word of warning, though, before you read on.

What you read below is not going to include slick hacks or shortcuts to get to financial resilience.

The whole premise behind financial resilience is that there’s a solid financial foundation built of tried-and-true strategies and steps. These are often overlooked or prioritized for later because they’re not as sexy as areas like marketing, product development, and client acquisition.

Although the idea of business finance may not initially part the clouds and light your eyes up with sunshine, we’re pretty sure that the outcome of financial resilience will do that for you. (Metaphorically speaking, of course.)

Without further ado, our top three tips are: (1) grow sustainably, (2) be thrifty with the money you spend, and (3) have a clear plan of action.

Let’s dig into these and see how you can apply them to your business.

1. Grow Revenue Sustainably

It is much easier to get someone to give you money when you already have a reliable income stream. Talk to your bank about growth “working capital funding”–that’s what the bank calls this time gap.

Map out a year or two of expected revenue and growth costs using a projection method that factors in cash timing (a budgeting tool).​

Planning is your best friend in business growth because it focuses your attention and makes you intentional about what you’re trying to achieve. To map out 1-2 years of expected revenue and growth cost, you’ll want to use a projection method that factors in cash timing (i.e., a budgeting tool). Think carefully about how you’ll need to build up your foundation (e.g., the operations and marketing side of your business) to get to those goals. 

When you’re doing this, also consider the timing between investing in your business’ foundation and when the revenue is projected to come in from that effort. Timing is everything, and the banks and investors are going to want to see that you’re planning accordingly.

Plan to grow slowly.​

At first glance, fast growth in your business sounds like an obvious win, right? Yes and no. 

Before we dive in further let’s clear something up. Yes, there’s the odd occasion where a social media post or an article goes viral, and suddenly a business is swamped with requests. We’re not talking about that kind of situation. What we’re looking at are the strategies and plans put in place for growth and the financial forecasts attached to them.

You see, fast growth is bright and shiny with its larger revenue reports, but most people don’t talk about the hidden costs of rapid growth.

Cue recruiting sprees, compensation, training, upgrades in tech (to accommodate your growing clients and staff), human resources, and more.

Instead, when you’re putting your strategy in place and modeling your financial forecast, you want to aim for slow, steady growth. The exact percentage will vary depending on your industry, but you can see what it looks like in the day-to-day operation of your business.

  • Taking time to hire the right people before you’re desperate so that you can ensure that they’re a good fit and provide them with quality training and mentoring. And making sure you have the cash to do this.
  • Proactively managing expenses so that you can leverage profits strategically in areas that will grow your business in the long term while reducing spending in areas that have a low ROI “Return on Investment”. (No, Mark. We don’t need to buy 1000 rolls of toilet paper to save $0.50 a roll.)
  • Take time to find the right clients. Not every dollar earned is a good dollar. Some customers (due to the extra time they require from your staff, the cost of too many change orders or significant use of cloud data storage space), can actually cost your business money. A surprising number of businesses actually lower their profit by adding more revenue.

2. Have A Clear Plan​

Before we dig into sorting through your expenses, you first need to set cash goals.
You didn’t start this business to stress over whether there was enough cash to make payroll once a quarter.

You didn’t go into business for yourself to rack up a credit card bill and fret over whether you can make more than the minimum payment this month.

And you certainly didn’t build a business to pay everyone else except for you.

You started this business to do what you love while making a reasonable living wage, but it’s hard to keep loving something that’s giving you premature grey hairs.

The surest way to financial security is clear expectations.

Ask yourself these questions:

  • What are my personal income goals?
  • What do my revenue and expenses need to be for me to meet those goals?
    • Is revenue too low?
    • Expense too high?
  • What can I change in my business to make my goals more achievable?

It essentially boils down to three options: increase sales, decrease costs, or a mix of both.

Want to see what this could look like? Here’s a fictitious (or not) example for you:

You run a taco stand, and you’re dipping into your emergency credit card more frequently than you want to admit, and you can’t even pay yourself a living wage.

Do you need another $500/month for your taco stand so that you don’t dip into credit?

Then you need to find $500/month in New Revenue (minus those variable expenses like taco meat and shells) OR reduce expenses by $500 / month. Cue possible solutions:

  • Maybe you don’t need two full-time servers during the afternoon slow shift.
  • Perhaps you can change the staff perk to one can of sparkling water per shift instead of all they can drink.

Whatever your plan looks like, remember that you built a for-profit business to make a profit, not to rack up your bills and wake up stressing about how you’re going to pay them.

3. Be Thrifty with Expenses ​

Now that you have your cash plan, ask yourself this question: What money do I need to spend to achieve my goals?

Step 1: Look at all of your expenses and decide what you need to keep the lights on.

Write these down.

If you are not hitting your cash goals and you have a high rent location downtown, then could you move further out?

Would any of your employees prefer to work from home part of the time so you can secure a smaller space? (Double-win for providing flexibility to your staff’s work arrangement.)

Think hard about what you really need to keep serving your clients.

Step 2: Look at your wants.

Everything outside of your must-have-to-be-able-to-operate expenses is a want-to-have expense. Write these down.

Take your list of want-to-have expenses and carefully rank them in priority.

  • Does an expense speak to the people, planet, or profit side of your business (like in Triple Bottom Line strategy)?
  • What has the greatest ROI in the short-term?
  • How about the long-term?
  • Can you innovate how you achieve the outcome of the expense so that you can save on time or money?

Next, allocate a dollar amount to each of these want-to-have expenses.

  • I really want to foster camaraderie with my team so happy hours a
  • Sodas in the fridge are nice to have, but not essential. $50 / month
  • I love having a part-time assistant for scheduling, but maybe there’s another way I can achieve this convenience that I haven’t thought about yet.

Remember that as the business owner, each additional expense takes away from cash that could be put in your emergency fund, used to pay down your credit card or used to fund your retirement account.

If you aren’t willing or able to cut an expense needed to hit your goal, go back to the drawing board. Are your goals reasonable? Do you need to revisit revenue or product pricing?

Get this all done and then set sail.​

Building a business is a juggling act where there are often many (or all) balls up in the air at once. Often, we know that the finances are necessary, but our attention gets pulled into other directions. Unfortunately, we need healthy business finances to fund all of the other aspects of our business. This is why building a financially resilient business is so important. This is why we created this guideline for you – so that you can begin to build resilience in your business so that it can weather the storms that the economy, your competitors, and even your staff, throw at you.

Ready to add financial reporting and dashboarding automation, done-for-you forecasting, and real-time comparative analytics to your financial resilience plan of action?  Learn more about how AutoCFO can help you with this.