If you can live financially free during the COVID-19 disaster, lucky you! I can’t say I know anyone like that. In our recent conversations with clients about surviving lockdown and its attendant economic slow-down (or is that melt-down?), the panic and worry are palpable. Fortunately, for us “normal” business owners who exchange time for money, the immediate future need not be all doom and gloom.
We define financial freedom as having a passive source of income that funds our cost of living. Although we focus on growing the value of your business in our Ownership Wealth and Freedom (OWF) course, right now, the other side to the financial freedom formula is much more relevant: how to reduce your cost of living.
For a very few companies, physical distancing may bring opportunities to grow or even create new revenue streams. Zoom demonstrates this well, even though it’s clearly an outlier, with its share price more than doubling. (IG Group, 7 Apr.) Only, if you aren’t already set up to sell and collaborate online, you may have missed the bus. Regardless, for most companies, today’s urgencies are the twofold priorities of slashing operating costs while limiting revenue attrition.
The most extreme approach is to suspend trading to cut costs to zero. Problem: that means switching off the cash register. Living with zero cash inflow is pie in the sky, so in reality, our ability to literally close the doors depends on how long we can live off cash reserves. Sadly, that’s just not an option for many.
Whether your revenue is reduced a little or cut to zero, you’ll want to trim your costs to survive the drought. The most obvious savings areas are inherent in social distancing, such as cutting out travel, entertainment and refreshment costs.
Some overheads and utilities, like electricity, phone and internet, are billed at a lower rate for homes than business.
Now might also be a good time to review your financial tactics with your accountant. For example, if you have a space in your home dedicated to your business, you could apportion costs for your home office as your company’s tax-deductible expenses. (I recommend verifying the ins and outs of this with a reputable accountant.)
In fact, some costs could be zeroed. For example, eliminate phone costs altogether by going digital (if you haven't already done this). The data costs for WhatsApp, Skype or Zoom calls are much lower than regular call costs.
With less commuting to the office and meetings, we should not only enjoy greater productivity rates, but also benefit from reducing the indirect costs of resource usage. For example, with less commuting, we’ll surely push out the service schedule for car maintenance. And online meetings mean only the top half of our wardrobe needs regular washing – so at least a 50% saving in laundry costs. Or would you be extreme and merely rotate your wardrobe for meetings without washing? After all, no-one can smell you in a virtual meeting.
In the same way that we share in OWF that a combination of tactics is the best approach to growing business value, a well-planned and well-timed blend of cost-cutting measures will surely achieve a better result than focussing on just one thing. After all, unless it’s impossible to sell anything during lockdown, you’ll want to avoid starving your value-creation engine of fuel, even if it’s to keep it ticking over just to stay in touch with customers and provide a skeleton service.
There are plenty of other areas where we could snip costs, but exactly how we implement that depends on each specific business, your suppliers, products and clients, and your personal situation. So rather than listing them superficially, here are 2 useful resources for more ideas:
- “Five simple ways to save money when you're working from home”. (The Guardian)
- “25 Ways to Cut Costs in Your Home Business”. (The Balance Small Business)
Additionally, HBR offers (in “When You’ve Got to Cut Costs—Now”) well-organised groups of critical tactics to urgently slashing 10%, 20% or 30% off your cost base. The take-away is that the deeper you want costs cut, the more strategic your approach needs to be because of the greater impact on the overall business.
Lastly, despite the dark days looming, being able to continue working, even if from home, can play a massive psychological boost in staying sane. For many of us, having a job at all, let alone the work we do, making a difference in the world, and simply enjoying the mental stimulation, is a critical factor in our self-identity. However much your daily routine carries on or is completely disrupted, I recommend finding ways to keep working at a low cost and for more than just the income (as critical as income might be).
Not to take anything from the very real threat to life and livelihood, it’s interesting how this crisis we share can both bring us together and force us to find more sustainable ways of doing business.