Episode 435: Do you know your buffer in this economy?
In this episode, Fiona discusses the crucial practice of determining your business's survival rate. She also talks about the importance of building a financial buffer, especially in uncertain economic times. Tune in!
You'll Learn How To:
Importance of knowing your survival rate
Building a financial buffer
Managing business expenses and personal finances
Strategies for accumulating emergency funds
Assessing essential and non-essential spending
Importance of financial planning in uncertain times
Tips for maintaining financial stability
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Welcome to episode 435 of the My Daily Business podcast. Today is a quick tip episode and this should be something that you're doing regardless of what's happening in the economy, but especially right now with what's happening in the economy. Before we get into that, I want to of course acknowledge where I'm coming from and acknowledge the traditional owners and custodians of these lands, and that's the Wurrung and Wurundjeri people of the Kulin Nation. And I pay my respects to their elders past and present and acknowledge that sovereignty has never been ceded. The other thing I wanted to mention is that we are bringing back the Marketing for Your Small Business course and coaching program for the last time this year. If you're interested in that. It is a nine-week live coaching program alongside the Marketing for Your Small Business course, which is always available.
You can do the course anytime, but for nine weeks you get to work with me on finishing the course and coming up with an amazing marketing plan. You can use that just ahead of the hectic retail cycle at the end of the year, or you could use it and create your plan for 2025 and beyond. The great thing about this is once you have a marketing plan and you fully understand how you have come up with that, you can just rinse and repeat every single year and see what's worked. Do that again, see other things you might want to experiment with and try those things and test and repeat and you have a strategic framework. Again, if you want to be interested in that or if you are interested in doing it, you can go to marketingforyoursmallbusiness.com and find all the information about when we start, what time it is, how much it costs, all of that. Let's get into today's quick tip episode.
As I alluded to at the start of this episode, today is a tactic. It is honestly one of the most important things that you can do for yourself and your business anytime, particularly when we are in an economy and a level of uncertainty as we are right now across the world because this is going to give you a little bit of confidence and a little bit of security. Nothing is ever completely hundred percent secure at all times, but this is something that I think people don't do enough. I work with people on their money all that time, and I want to preface this by saying I'm not an accountant, I'm not a CFO, and I'm not a licensed financial planner. However, I work with people and their businesses and a huge part of this is their finances.
We look at everything from what are they trying to build, like long term, what is their survival rate. What is their thrive rate? What are they trying to do? Who are they trying to hire? How much are they going to need to factor in for that? Other things that they want to build into the business in the next few years? Things right now that need to be built into the business, how much does that cost? We look at two particular figures outside of all the other things like cash flow projections and your profit and loss and different ways of tracking your revenue. But two of the numbers that we look at a lot are your survival rate and your thrive rate. Your survival rate is made up of two numbers. We look at two big numbers, survive and thrive.
But then if you break it down, the survival rate has two numbers included in it. One is how much the business needs to survive. If you have staff and they're essential for the business to survive, then how much do they need to be paid? How much do all your subscriptions come to how much roughly, as we look at tax, we look at all sorts of things in Australia, if you have a company you have to pay certain requirements have to be paid, things like work cover, registration of your business, like all of these different things that need to be included because they keep the lights on? In addition to that, the second part of your survival rate is how much you personally need to be taking from the business for you and your household. Whether that's just you or whether that's you and kids, whether that's you in multi-generational living, how much you need to bring in from the business into your personal life?
There are two numbers there. And in that, if you're reading and you've never done this before, we have a Money Mapping course that you can buy. And if you don't have the cash for that right now, then know that with your survival rate, you always want to look at every single thing that you need to survive in your life. But also please, please, please include in that your superannuation, if you're in Australia, your 401k, some pension, where you're reading from, but make sure that you're paying yourself that. I put that under surviving because you want to survive in your future as well. In the surviving figure, you've got how much you need to bring into your household, for the household to survive, and also how much the business needs to survive. And you combine those two numbers and you come up with your survival rate.
The survival rate is super important to know. A lot of the times people are coming to me and they're saying, this is how much I want the business to bring in. And when we talk about it, a huge percentage have just picked that number out of nowhere. It's just an arbitrary number that hasn't been thought through. And that's not a criticism. That's just I think a testament to how much people are just following the masses, or listening to people on social media about how much they should earn as opposed to looking at how much they particularly individually need for this business to make. Because everyone has their own money stories happening behind the scenes. Some people have trust funds, some people were set up with multi-generational wealth. Some people got into the property market early, some people have a lot of shares.
You don't know that because that person's saying they earn this. That's the total sum of what they earn. And then you're comparing yourself to it and saying, I should be there anyway. The point is that in your survival rate, you want to establish what that is so that in these tough times when the economy for some businesses, my businesses are flourishing right now, but a lot are not, and they're finding it quite struggling in this economy, you want to know what is the minimum that I need to be bringing in and not getting so fixated on what you're not bringing in, but knowing, I'm bringing in enough for us to pay our bills for everyone in the workplace to still be paid for the lights to still be on for us to be doing X, Y, and Z because I know my survive rate.
Once you are aware of what your survival rate is, you can create your buffer. Let's say, and I'm just plucking at numbers here. Let's say your survival rate for your business is $15,000 a month. You might go, for me to feel okay, or at least a little bit comfortable, or not even necessarily comfortable, but a little bit less unstable, I would like for the business to have a buffer of $45,000, which is 15 times three. That's a three-month buffer. You are going to try to accumulate that $45,000. Now, that might come from a variety of ways and we'll get to that in a second. But the first thing is to figure out what is my survival rate, and also what does my buffer looks like. And it might be that you're like, I'm not happy with the three-month buffer.
I need a six-month buffer. Because if we need to drastically change things up, I want to give people if I need to make staff redundant or fire them, I need to give them a bit of time. Or if we need to downsize our studio or get out of a lease or whatever, we need to have this buffer in place. You might say, it's a six-month buffer. In that case, instead of it being 45,000, it's 90,000 that needs to be put into some emergency fund. Now if you're reading this thinking, there is no way in hell that I can find $90,000, I'm scraping by just to pay the bills that currently sit in there, then this is where you want to look at every possible avenue for recouping any expenses that don't need to be put out right now for looking at things like payment plans for looking at is every single thing that you're currently spending money on, essential in the business.
Where could you cut back? But also in your personal life, are there any expenses, again that could be cut back? Are there things that you haven't claimed? I was talking to a Group Coaching group recently about this and talking about, just in terms of I have private health insurance and I had a few things that I hadn't been claiming. One I didn't even know in one case, that you could claim for a particular part of one of my children's health. just getting to grips with like, is there money sitting somewhere that I'm eligible for, whether in your business or in your personal life? I'd be looking at that. I'd also be looking at any outstanding invoices, or anything else like that where you can get that money in. But other things that maybe you had thought, we could do X, Y, Z, but maybe that could be put off for 12 months.
You're using that money to build that buffer up. If those things are not essential and you are in a bit of a panic at the moment, then I'd be looking at what can be delayed. Let's say you are going to refit your shop, you might decide, I'm going to put that off for six months and I'm going to take some of the money that I would've put towards that and start building this buffer up. Now, momentum loves action. If you are even putting like $5, $10, $20 into something, you might think, that's not making a dent at all. But over time, seeing that number go from zero to your first a thousand dollars or your first $500 or your first $5,700, whatever it is, is going to give you that momentum to keep adding to it.
One of the people who was very influential, I guess in my life, even for a very short period of time, was one of my editors that I used to freelance for. I was a freelance journalist for a newspaper and one of my editors, I said to them, I wanted to quit my full-time job. And she said, what I would do is save three months, three months of living expenses, and once you get to three months, then you feel comfortable to quit. And I was like, okay. At the time I had rent, I was living with my boyfriend who's now my husband, I sat down and figured out how much do I needed to survive. How much do I need to pay my part of all the bills and rent and everything else? Where am I going to get that money from?
I started saving. And even things like if I'd gone out with friends instead of getting the drinks like out with my friends at a bar, I would have the drinks at home or I'd be like, can we everyone come over to my house first and we can have some drinks? And then I was happy to go to the bar because I was happy then, but I was also saving money. When I'd save that money, instead of going, tonight I probably would've spent $50 at the bar, I would take that $50 and I would put it into that savings. And it was such a huge incentive because when I could see the cash piling up, I was like, this is closer. This dream of quitting my job and starting my own business is closer. I was about 26 or 27 at that time, and that's when I started my first business I did a lot of like-brand stuff with fashion brands that were trying to get into e-commerce for the first time circa 2007.
That was huge, and I've always remembered that advice that she had. And this is the same in a similar way that I'll talk to business owners and be like, if you are stressed about the economy, instead of sitting there and getting frozen and being stressed, try to help yourself so that because there are always peaks and troughs, and the economy will come back, it will, everyone is freaking out right now and media and the constant pressure about uncertain elections and what's happening around the world, and also what's happening across the board in inflation rates and people with mortgages or people in the rental crisis or people in the housing crisis. there's just so much stress and pressure out there. Of course some business owners, they're seeing that they're stopping spending and their customers are doing the same thing.
Instead of freaking out and just throwing all your money at all of these scattergun ad hoc approaches to marketing or like, I'm just going to put it all into ads, or into whatever, take a minute and think about, yes, maybe some needs to be spent on ads right now, but have a look at the whole state and then think about, I don't want to be in this position again. What can I do to try and safeguard myself? I can start building that buffer up. I'm not saying I just took that example. I'm not saying you shouldn't go and do ads for sure you have to assess your business. But I think what happens in this time is that sometimes people panic and stress as opposed to taking a logical approach and looking at this long term and going, let's say the economy is going to be like this for the next 18 months, or this is going to happen for maybe six months or three months.
None of us know exactly, but what can I do? One thing that I can do is start accumulating that buffer so that future me is not feeling the panic as much as I am right now. That is it for today, getting clear on your survival rate understanding what your buffer looks like and understanding how you might start building that up. As I said earlier, we do have a Money Mapping course available. We also have a bunch of podcast episodes that we've done around money mapping and how to work all of these things out. Depending on where you're at, you may decide, you know what? I've got the cash right now to pay for the money mapping course. I'm going to go and do it. If you do not, you might decide I'm going to go through some of these past podcasts. If you just look up the My Daily Business Podcast and look up money, you should be able to find a few of those.
We've done many podcasts on money in this podcast. The other thing you might want to do is sign up for our Sunday email. I often send emails about money, about how to look at your finances, and different tips, tools and tricks that you can do that can help you. But I hope wherever you are at the moment, whether your business is flourishing and you're like, things have never looked so good, or if you are in the opposite situation, I think that the buffer is an important tactic regardless of where you are. Because yes, things may be up right now, they'll come down, if they're down, they'll go back up. That's how life works. Things go up and down constantly, and what you want to do is try and protect your future self as much as possible. Thank you so much for reading. If you want to go through this in text format where you'll find the links to anything I've mentioned, you can find that at mydailybusiness.com/podcast/435. I'll see you next time. Bye.
