OK, we’ve talked about how to handle your feelings during a crisis.
Now let’s talk finances and survival for your business.
And yes, potentially, opportunities for growth, too… but that’s in a further essay. Survival first!
I don’t talk about it all that often, but I moved out of an abusive and financially precarious home at 16, and have been paying my way ever since. It sucked a lot of the time and I was broke a lot.
But that does mean I’ve got a lot of hard-scrabble financial survival skills that solidly-middle-class, educated people don’t.
So I’m going to deploy them today to show you how to survive when things go to shit. First things first:
1 If your government is offering financial resources, you should absolutely use them!
There are no medals for “toughing it out.”
The economy relies on everyone participating… so even if you aren’t in dire straits, take advantage of the resources your government is offering now.
Because that will help you continue spending, supporting the businesses you patronize, which helps them pay their salaries, and so on, so forth, making the wheel go ‘round.
So if you are already self-employed or run your own business, avail yourself of the resources your government is offering (if any):
In the US, if your business is at all affected, you will probably qualify for the new Paycheck Protection Program (PPP). It applies to self-employed businesses as well!
PPP offers up to 2.5 months of payroll for yourself and your team, office rent/mortgage, health insurance, and interest on business debt. It’s designed to be easy to apply, with an interest rate of 1%, and most of the loan is forgivable if you spend it on payroll (including yourself) — so gather your tax and payroll docs and check out this guide ASAP.
If your business has a greater need and a decline that you can prove, you may qualify for the Economic Injury Disaster Loan (EIDL). The terms aren’t as favorable (they’ll check your credit and it comes with a low interest rate), but you can potentially borrow much more money.
Even if they don’t approve you for an EIDL loan, you’ll be able to receive a $10,000 grant. That’s right… a grant, you don’t have to pay back. (Note: if you get both PPP and the EIDL grant, the $10k will be deducted from the “forgiveable” amount of your PPP and it will need to be repaid.)
Other countries programs differ; I know many EU states are offering the equivalent of unemployment or other cash assurance for self-employed people and employers.
If you are newly unemployed, avail yourself of unemployment:
Many countries are treating self-employed people who lose clients as if they are “regular” unemployed people, so definitely don’t give up on this before you try.
If you’re in the US and lost your job, that’s a “qualifying event” so you can enroll in the ACA marketplace for health insurance right away.
2 Reduce your spending
It’s better to keep cash in your pockets right now, but where possible, don’t hamstring your own productivity & potential.
Debt and obligations:
Lenders, landlords, mortgage companies, car loan companies, etc are offering payment deferral, reduced penalties, etc. In some countries or localities, it may be required by law.
Pause your student loans, if you have them. You can get forbearance (no payments) until September, with no penalties and no interest accrual. US folks, look here. Outside the US? I would figure your country is doing something similar, so be sure to check.
If you have credit card debt, call your credit card company and be sure to explain that your request for lower interest rates etc. is due to financial difficulties caused by COVID-19. Be specific. Mention COVID-19 by name. Tell them, “my revenue has dropped significantly” or “I’ve been laid off.”
If you use credit cards for your monthly expenses but pay them off in full, now might be the time to negotiate a lower rate and let at least some of that float until the uncertainty is past. Many credit card companies are allowing you to skip payments with no penalties for some period of time.
If you have a couple credit cards but don’t normally carry a balance, and therefore don’t typically pay attention to terms and offers, check out the balance transfer options… you may be able to float expenses on one card and then transfer it to another for a drastically reduced rate. Some are even 0% for a year.
Bottom line: Nobody likes debt, but it beats a real crisis. Better to have some debt, even to declare bankruptcy later on, than need cash to keep a roof over your head and food in your belly now, and not have it.
Taxes, the self-employed person’s bane
The IRS has extended the tax filing and payment deadline with no penalties to July 15, 2020.
If you will owe federal taxes, but paying would put you in a precarious situation, keep the cash — the IRS offers low interest payment plans (3-4% APR) for tax debt under $50,000 pretty much instantly over the phone; in normal times, this is what I call “the cheapest money around” — better than any loan you can normally get, and infinitely better than a credit card.
Many states and localities are also extending tax deadlines with no penalty…
Countries with social insurance typically offer reduced or suspended payments in times of hardship. Austria, for example, offers a multi-year benefit if you are laid off and then decide to start your own business.
We all have services we don’t use, and now is a great time to cancel them.
If at all possible, I recommend not canceling services you do use, because 1. research has shown that businesses who keep investing in the things that create value for them are more likely to survive a recession, and 2. if you value the product or service, you’ll want them to stay in business.
Contact services you love & value to ask for a discount if you need to.
If shit really hits the fan on services you need, look for substitutions — for example, do you have a storage unit? Can you haul that stuff home and just live with it? (Or get rid of it?)
I’m sure you don’t need a lecture from me about how to cut your spending on food and entertainment (if you can even get pickup or delivery food in these times).
Note: if you’re financially comfortable, go ahead and spend on your local businesses if you can & want to. But I wrote this for those of you who aren’t financially comfortable. Don’t set yourself on fire to keep somebody else warm for a hot second.
If you have automated investments, retirement account deductions, etc., now is a good time to stop those automatic transfers before it makes that cash harder & more expensive to get to. Again, this is my advice if you are facing a real and immediate financial hardship: Cash now > growth later.
Employees and contractors:
Sometimes it’s not possible to avoid laying people off, but people are the economic engine of your business and firms that retain their talent do better in the long run. Let people go as a last resort. Talk about other options (such as global paycuts) with them before you make any decisions. If worst comes to worst, do your absolute best to help them find other jobs or clients.
3 Assess your financial assets
Generally speaking, my strategy in a time of turmoil is maximize cash. Even if it’s “expensive” (interest rates), it’s better to have the flexibility. And once you’ve done that, maximize your options, by ensuring you have as much credit available as possible.
Need I say more?
Don’t need to repeat myself, I think
Business and professional assets:
I’m going to cover these in my next essay about making money. Drop your email in the box at the end to make sure you don’t miss that!
Nobody loves to work collections when things are good, but if a recalcitrant client owes you money, now’s a good time to put in the effort to collect. If they continue to not pay, look into whether it makes sense to file a claim with your local small claims court, or potentially sell the debt to a collection agency.
Business credit and loans:
If you’ve got an established business but don’t have a credit card or line of credit, now is a good time to apply. Don’t wait for things to get worse.
If you use Stripe and they offer you one of their advances/loans, that might make sense — people have criticized their repayment terms, but the back-of-the-napkin math I did indicates it may be a reasonable deal especially if you expect a decline in your revenue. The cost of the loan itself is a fixed dollar amount, so if you pay it back “fast” it’s got a high “APR”; the payments are made on a monthly percentage of your revenue, however,so if your revenue goes down, you pay less, and take more time to pay it back, making the effective APR lower. Yeah… it’s complicated.
It sounds like a scammy infomercial thing, but my husband (who didn’t grow up in the land of infomercials) filled out the forms for me and actually found hundreds of dollars in refund checks etc. that never made it to me somehow.
If you’ve hopped around jobs and never bothered to consolidate your various small retirement accounts, now is a great time to put in that effort.
If you’re in the US and you have a retirement account, like a 401k, you may able to give yourself a pretty good-sized personal loan using those funds, with the low interest rate that you will pay back to yourself. I did this recently for something else (a real estate purchase) and the interest rate was under 4%. Read about 401k borrowing here
If things go really sour, you can cash out your 401k. A “hardship withdrawal” is less favorable in the long run, although more flexible — in normal circumstances, you’d pay a tax penalty to simply pull out your own cash. But the US is deferring that tax penalty for 3 years, and if you pay back the money during that time, you will pay no penalty. Read about 401k hardship withdrawal here
I can’t speak to other countries, but most are better than the US on this sort of thing in general, so I’d definitely look into whatever the local equivalent is.
Credit cards and personal loans:
If you don’t have a lot of available credit but you’re still employed/making money and your finances have been heretofore pretty orderly, now is a good time to apply for more credit. Better to have it and not need it than need it and not have it.
Some credit cards offer 0% balance transfer offers for 6, 18, even 24+ months. This gives you a lot of options to float necessary expenses until times are better.
Some credit cards offer cash advances or fixed financing (aka a loan) at a better rate (8-11%) than credit purchases, or other personal loans.
Personal loans are a tolerable option if you’ve got good credit, especially from platforms like Lending Club.
I’ve put this near last because while home equity loans are a pretty standard tool for consolidating high-interest debt, you may find difficulty in getting a home equity loan or line of credit in these times due to 1. banks’ general willingness to lend (or not), and 2. the current market value of real estate; but it can’t hurt to try.
I’ve lived through a lot of rough times, and I’ve often sold my stuff to make rent.
While now is probably not the best time to sell general stuff (viz: everybody’s going through it), and hopefully with all the other options it won’t come to this, if you have collectibles, equipment, or other valuable items that might bring a pretty penny… make a list. Older computers, phones, camera equipment, games, artwork, collectibles…? And if it’s sitting around because you’ve been meaning too get rid of it, accelerate those plans.
This is a particularly worthwhile activity if the target market is typically wealthy-ish people, who are insulated from the job market — eBay or specialty dealers, consignment shops (including online ones like The Real Real for fashion and art), and auction houses can be your friend.
Note: if you’re reading this from a comfortable perspective & expect that to remain, consider if you can donate any used computer equipment to those less well-off but forced into remote work or school, like poor neighborhood kids.
4 Create a decision tree…
Not all monthly payments are made equal; some are far more crucial to make than others. It’s best to decide in advance what you’ll skip if things get really tough…
What will you use credit for, and what do you have to use cash for?
What services can you absolutely do without, and what can you hobble along without?
Credit cards are unsecured debt, so they literally can’t do anything to you but put a mark on your credit report, and during these times probably offer programs specifically to help you avoid this.
In a truly worst case scenario, you can often skip your utility payments for 2-3 months before they shut you off, and even longer if you call and negotiate a payment plan. Lots of localities are making it illegal to do shut-offs at this time.
Decide in advance what you’ll cancel if things get bad, and how soon you have to do it to avoid paying the next month.
5 Look for ways you can help people. You can even make money doing it.
Because even in a recession — even in a depression! — there’s still a potential to make sales if you can deliver real value to people who will pay for it.
And that’s what we’ll focus on in my next article.
There's more where that came from
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Just a reminder, or in case you’re new here…
I’m not a starry-eyed optimist, I won’t tell you comforting lies for your benefit or mine, and I won’t blow sunshine up your ass; people consistently (to my chagrin) call me “brutally honest” for a reason. It’s brass tacks time.