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How to Recession-Proof Your Business

Automatic TRANSCRIPT

As of July the United States economy has experienced the longest period of sustained economic growth in nations history folks that's a big deal we should celebrate that but as a result you only have to turn on the news or the radio for five minutes to hear some talking head eight business owners around the country are all too often taking part in the panic parade from the Rainsy Network this is the entree leadership podcast where we business leaders grow themselves their teams and their profits I'm your host Alex Judd in here at Ramsey solutions we wanna make something very very clear it's not a matter of if a recession will occur it's a matter of win and you know what you can't control that but as a business owner there are several things you can control and that's why today we wanted to introduce you to mark Floyd you see mark is the CFO that Dave Ramsey hired destroyed the finances of our two hundred million dollar organization and as such he believes that responding to an even thriving through the next recession has very little to do with risk and chance and everything to do with preparation diligence and common sense this is the longest second expansion in the history of the United States so we're at a hundred and twenty something months now I think the longest before that was in the nineties so it's been a long time since a lot of business owners have been and through a recession if you will so there's probably a lot that have never even encountered that so that might be why there's a little freak out going on because they haven't experienced that up and down before those that are kind of the season vats probably know that there's just as many difficulties that are coming there's probably just as many opportunities and so I think you've gotta look at it you know it depend on what type this year in might it affect you negatively but there's a lot of businesses out there they can take advantage of recession to some extent clearly we don't WanNa great recession like we had back in Oh wait seven Oh eight so I wouldn't let it freak you out and the better that you understand what's going on in your business the less you should be freaked out and the more you are asking questions of finding out what's going on in your world reading about things talking to other business owners what they've seen before maybe you've only been in business for five years and not for fifteen years and you haven't experienced this before go find somebody that has and talk through with them to find out you know what did you do last time what what did you see what signs did you see what how did you start preparing so let's just kind of and the the broad umbrella some action that you ought to take but clearly the better that you are prepared stepping into recession the better your are equipped to handle that I and I spoke earlier when I said advantages if you're sitting on a pile of cash what better time to jump in and maybe acquire something or do something if a competitor of yours or a different line of business that you were looking and going into if they are all sudden are struggling because they didn't see this coming and they didn't prepare for it or they were ill-equipped or they had too much eh too much risk all of a sudden you've got an opportunity in front of you that you can take advantage of so you can get freaked out or you can kind of get pumped up about it sounds sick and the question that's how you could approach it but I think just in hearing you talk about that it's almost like if this recession is going to happen it will happen eventually so it's a win and when it does happen are you ready right I mean it's it's a win it's not an F. we're not going to have a one hundred year long economic expansion ah some point in time this ends they've been saying that for probably four or five years now because this has been going on and we keep having you know good employment report and all that sort of stuff but it's coming and so don't put your head in the sand don't think this is always how it's going to be get prepared and so how you get prepared is probably approach it two different ways if I'm a new business I probably if I went into business having these best case plans well maybe I need to be thinking what was my middle case plan maybe not worst case but what's my middle case and so how would I manage towards those numbers if I thought maybe I'm not going to have ten thousand cells month I'm going to have eight thousand because of something going on again maybe if you're in a Jimmy John's franchise Y- you may sell more sandwiches during during that time but if you're in a high end restaurant business then that's probably not going to be okay so it's going to be individual business it just likes going to affect individuals differently as well but just you know getting prepared for that and knowing what's coming for your particular industry is important and I think that that's kind of at the rated this place both for how we teach people to manage their personal finances but then also how Dave and our company teaches businesses to be aware of manage their finance as you hear the phrase all the time know your numbers your numbers know your numbers in my time working with business owners they know that it's important to know their numbers but so often they don't know what it means to know their numbers so I'd love you to just kind of walk us through when you is the CFO Ramsey solutions sit down with a small business owner the things that you want them to know in order to feel confident about them being aware of the financial state of their business sure I get that opportunity in a couple of times a year when we bring in folks for our entree master series or at Entree Summit and so I immediately want to know what's their what's their knowledge level in this area their business and so I mean simple simple questions like you know what your top line and they look at me like a deer in the headlight then I go no in we need to start with even even more basic stuff what you sell and how much each day but if they were talkline revenues for the year and they can go hey last year we did five hundred thousand and we're on our way to seven hundred thousand this year that I go okay they understand what the past was and they there it's enough so that they know what they're kind of run rate is where they're headed into the future so I you know if they don't know the revenue than what we've got problems right that's right okay so just for the that are listening to this I would recommend as a great time to pull out a notepad if you're driving don't pull out a note pad but go back and listen to this the first one you said was annual top line revenue essentially just a weird Nisa where that lands year to year where it has been in the past and where it looks like things are going right now because if I'm a new business and I started off with one thousand and sales but I'm doing ten thousand and sales this month then my run rate is more like a hundred and twenty thousand annual because it's not twenty thousand total for the whole year it's I'm now operating at a hundred two thousand level well what does that mean what does that mean I can do can I hire somebody now cannot afford to do that. Hey that recession might becoming do I want to do that were what would be a target that I would said were then I can go if I get the two hundred thousand then I could afford somebody you'd be adjusting your business plan all along going here's does coming but I know my numbers I know I know what's going on my business to be able to make good decisions knowing that something like that could be coming and so we talked annual top line and then obviously that kind of feeds into understanding it knowing where you're leaning bottom line based on your expenses and revenue right that's where it gets a little trickier right with a small businesses in particular because if they understand their top line okay so then what do you make and and then it all depends are they taking a salary out of the business or a large bonus at the end of the year but I generally just say remove that from the equation what would it make it if you weren't paying yourself anything what is this business make oh it makes two hundred thousand and you put one hundred thousand dollars salary out so it has a net income of one hundred thousand that's great but what is really make you as a small business owner are making two hundred thousand dollars out of that business so I want to understand I wanNA make sure they understand the difference between what they're what they're counting says that they make attended the on their tax earned versus what their true profit is coming out of that business and these are kind of the fundamental things that really every business owner weathered numbers are a strength for them or not they should have visibility and awareness of is that correct I don't know how you would operate of business otherwise why you're even in business if I I mean I know you probably went into it with a passion to do something to serve somebody or to do something that where you're calling is but you better understand your numbers or you're going to be in that business for very long you're going to wait up and you the mismanage your business and you may have mismanaged with your team members and you may have let people down the path they can add a great spot to work and Lo and behold I'm going business and that's the last thing that any of these business owners wanted to do and I think that that kind of hits home the idea that yes there's tremendous opportunity and knowing your numbers but especially for the basic things talking about right now it's not just an opportunity it's kind of a responsibility exactly exactly the next one is really focusing on monthly run rate and I believe that's really focused I'm on how much it cost to stay in business month over month is that correct right and when I was talking about their run rate on the revenue emmy really got three run rates that we could talk about I was talking about the revenues sure but you also might want to know what your burn rate is if you're losing money you know going into business and I've set aside a couple of hundred thousand dollars and I know it's GonNa take a while before we turn a profit how much am I burning each month so that's your run rate on your expenses while you're trying to build up your revenues and then also on maybe what am I making each month what's my monthly profit tend to be and that's kind of a run rate on that as well so you kind of breakdown that PNL profit and loss statement three different areas revenues and expenses and that ultimately your Prophet so we're looking at monthly cash flow cash in cash out of the business yeah so I'm a CPA and we tend to like to talk in kind of sophisticated turn been here long enough talked with enough small business owners that I know I need to take it out of the you know the classroom and take it into practical