Business Bookkeeping: How to Get Your Finances in Order During COVID-19 Downtime

This is a guest post by Samantha Novick.

COVID-19 is impacting businesses big and small in various ways. Everyone is learning to react and adapt to survive. Facetime shopping services, “Buy Online, Pickup Curbside”, selling online, same-day delivery, virtual showrooms—you name it, businesses are probably trying it.

Regardless of your circumstances, there’s one thing that everybody is looking closely at right now: their finances. In fact according to Faire’s survey of 20,000 independent retailers, 70% report “not having enough cash on hand to handle this type of crisis”.

Whether you went fully remote or your retail business is temporarily closed, there’s no better time to get your finances in order. With just a few simple steps, you can polish up your books and hit the floor running when it’s back to “business as usual.” 

Below we’ll walk you through several bookkeeping best practices to get your finances in tip-top shape during the COVID-19 downtime.

How to Get Your Finances in Order During COVID-19

Working capital has never been more critical. Some are turning to emergency small business loans to stay afloat. Others are preparing their reopening strategies. And more are planning for the post-pandemic recession. Money, money, money. You either need it now, tomorrow or yesterday — and it’s probably more like yesterday, given the impact COVID-19 has had on retail traffic in the United States. In fact, daily transactions have dropped to ~65% below normal levels.

The only way you’ll survive in the long run is by making more than you spend, and the only way to know how you’re doing with that is by looking at your holistic finances. First, let’s get your books in order, so you have a fresh, up-to-date view of your finances.

Clean Up Your Books

You’re busy—we get it. But there’s no better time to sit down and do your bookkeeping spring cleaning. Plus, now’s a much better time compared to the extended tax season when you’ll likely be focusing on returning to normal operations.

  • Gather all your paperwork: If you have bookkeeping software, you’ve likely already completed this step. Congratulations! If you’re still using the old-school hardbound ledger, get it out along with all your receipts, bank statements, invoices, bills, and other documents. (Also, now might be a good time to consider switching over to the cloud…just a suggestion).
  • Organize your transactions: Reconcile your bank and credit card statements to make sure they match the actuals. Create or recreate any missing transactions so that the records all match.
  • Verify inventory levels: Do you have the actual inventory that your records state you do? Check, and then check again — just to make sure.
  • Analyze financial statements: Once you’ve cleaned up your books, take a moment to create your three primary financial statements: your profit and loss statement, balance sheet, and cash flow statement. Look over these records (perhaps with an accountant) to discover any red flags or areas requiring attention.
  • File your taxes: The IRS has given you an extra 3 months to file your taxes, but that doesn’t mean you shouldn’t get it done as soon as possible. Filing now can help expedite your refund (if the government owes you one). Just file your return ASAP and wait until July 15 to pay any taxes you owe.

Forecast Cash Flow for Plan A, B, and C

Cash flow is often referred to as the lifeblood of your business. Your business can endure plenty of mistakes, but (unfortunately) cash flow isn’t usually one of them. Fail to manage your cash flow, and you’ll likely face a prompt business closure—permanently.

Cash flow is simple. It’s the movement of cash in and out of your business. If you owe more than you can pay, you have poor cash flow. If you owe less than you can pay, you have good cash flow. As a general rule of thumb, the more cash flow you have, the better. Easy, right?

The point of analyzing your cash flow isn’t to notice, at the moment, that you’re spending beyond your means—it’s to predict what the future cash flow will look like so you can prevent poor cash flow from ever happening.

Think about what’s next. What will things look like for your business in your realistic prediction of the future? What about if everything goes right? What if everything goes wrong? These are the financial forecasts you need to create.

Plan A: If things go in the direction you predict, how many sales do you plan on making? When do you plan on making them? Will you have any extra expenses?

Plan B: If things turn out better than you think, what will your revenue and expenses look like? Say, we don’t have a recession following this pandemic—what will your cash flow look like then?

Plan C: Now, plan for your worst-case scenario. Think about if this COVID-19 pandemic lasts longer than experts suggest. Think about if we crawl straight from this crisis right into an economic recession—how will that impact your cash flow? 

Faire also put together a handy calculator that can help you measure the impact of COVID-19 on your business. You can check it out here

Evaluate Cash Situation and Make a Plan

Now that you know what your cash situation will look like, it’s time to plan how you’re going to use your capital. Will you have enough? Do you have extra? 

If you don’t think you’ll have enough cash to meet your demands, try moving the numbers with the following tactics:

  • Reduce costs: It’s time to lower your expenses and make your business lean. Do you have unused real estate or excess warehouse space you can cut? Are old equipment and appliances spiking your utility bill? Are you spending too much on storing inventory? Look at your expenses, especially your larger ones, and identify which ones are essential.
  • Increase revenue: To improve your cash flow, you can reduce expenses or boost your revenue—or ideally, both. Bump up your sales by liquidating old and surplus inventory and exploring new revenue-generating strategies. COVID-19 is the perfect opportunity to test out new ideas. If you find one that’s working and adding value, scale and optimize it. If one’s not working, nix it and try something new.
  • Cut discretionary expenses: Cutting discretionary spending right now is a delicate balancing act. You want to keep morale up, but you also need to eliminate waste. Consider what’s necessary for the business and what’s superfluous. For example, free parking for all employees is nice-to-have, but it costs you a pretty penny month after month (and more and more as you grow your team). Health insurance, on the other hand, is a large non-negotiable expense—if you get rid of it, employees will leave.

Work with an Accountant

If you don’t have a full-time accountant, start working with a freelancer to make sure you’re doing everything by the books. Accountants aren’t only numbers crunchers and tax advisers. They are fantastic financial planners and are great at coming up with cash flow forecasts. Get them to take a look at yours—or better yet, ask them to help you develop your projections from the get-go.

An accountant can also help you identify tax savings and eliminate wasteful spending. Basically, if you can afford an accountant (the benefits usually pay for their services and more), get them to assist with all your financial planning. It’s well worth the price.

Get Financing Before You Need It

You never know when you’re going to need an extra helping of helpful financing, so go ahead and secure the capital you need in advance.

There is a whole host of financial relief programs and initiatives you can take advantage of, including two main SBA programs: The Paycheck Protection Program (PPP) and The Economic Injury Disaster Loan (EIDL) Program

You should start the application now, even if you don’t need the cash now. Although applications are open until June 30, there is no guarantee that funds won’t run out. There are no application fees or rejection-upon-approval fees, so you have nothing to lose.

If you don’t have one yet, secure a business line of credit or a business credit card (or both). These sources of financing are revolving credit, and you’re under no obligation to use them. That means you can keep them in your back pocket for a rainy day and suffer no penalties, fees, or interest. Plus, they’re super flexible, meaning you can use them for practically any business need. Whether you need to finance payroll, inventory, or equipment, your purchase is likely eligible.

Take this COVID-19 downtime as an opportunity to clean up and recession-proof your retail business. With forecasts in place, plans to make it happen, and capital to fund it all, your business is well on its way to emerging from the pandemic stronger than ever before. 

About the Author

Samantha Novick is a senior editor at Funding Circle, specializing in small business financing. She has a bachelor’s degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications.

About Francesca Nicasio

Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.