Is your accounting firm prepared for a financial crisis?
Although your firm and small business clients may be thriving in the current economic climate, it’s difficult to anticipate when there will be an economic downturn. You need to prepare your firm and your clients for financial catastrophes so you can work strategically while facing a recession.
Fortunately, Gusto, along with our partners at CPA Academy, presented a great webinar that will help you learn from past mistakes and financial crises so you can better prepare for the future.
Our webinar, “How to Safely De-Grow and Lead Later,” featured the business and accounting expertise of Jason Blumer, CPA and CEO of Thriveal, and Gusto editor-at-large, Caleb Newquist.
In this article, you’ll learn all about engaging in “survival mode,” the importance of proactivity within your firm, how financial crises reveal pre-existing problems within businesses, and the importance of learning from your business setbacks, so you can emerge on the other side.
Facing a financial crisis
When faced with a financial crisis, businesses and accountants are often forced to operate in survival mode rather than work strategically. For example, during the COVID-19 pandemic of 2020, countless business owners went up against serious adversity that jeopardized their businesses. Many had to close their doors permanently because of the economic hardships caused by the shutdown.
When you’re working as an accountant assisting a small business, it’s important to try to advise your small business clients from a place of strategy rather than survival. Jason observed that working proactively with a business is how you can grow a company, but businesses are often stuck in survival mode when facing a financial recession:
“Basically, what we’re doing is we’re all in survival mode, right? That’s not how you grow a company; that’s not strategic behavior. Another word for ‘strategic’ is ‘proactive.’ So if you’re a proactive company, you’re strategic [and] looking towards the future. You’re kind of planning for investments in the future.”
– Jason Blumer
During COVID-19, businesses were stuck in survival mode rather than proactively growing. Jason noted that when engaging in survival mode, accountants and businesses start triaging, meaning that they aim to prioritize problems and fix them in order to keep their businesses afloat:
“None of us are really able to [operate in strategy mode] because we’re in a market that has a perception of fear layered on top of it. So we’re really not able to interact with our market in a way that we normally are and sell things the way we normally have sold things. So you’re in a triage mode, which is a prioritization mode. And basically … you’re assessing each day’s fires, and you’re picking the highest priority ones that you have to put out that day.”
– Jason Blumer
When facing COVID-19, businesses and accountants had to prioritize fixing different issues rather than proactively growing their businesses. While in triage mode, accountants and business owners focus on doing whatever it takes to mitigate losses rather than expand.
Accountants and small business owners can’t entirely predict financial crises and guarantee avoiding triage mode, but you can learn from financial setbacks to improve your clients’ businesses and move forward strategically:
“[Triage mode] is an unhealthy way to operate a business. … It’s not good at all to operate that way, but you are in that. And I just want to point out—the way you grow a company is through really embedded processes, being proactive.”
– Jason Blumer
It may be impossible for your clients to be proactive when facing a significant financial crisis, but both you and your clients can learn from experiences and prepare for future economic recessions.
Unhealthy businesses struggle more during financial crises
Although financial crises affect all businesses, businesses that were already struggling before a crisis are far more likely to shut down than a healthy business. Healthier businesses are often able to lessen the negative economic impact on their businesses. Jason observed that the health of a business before a crisis determines how they’re able to navigate economic fallout:
“If you’re an unhealthy company coming into this crisis, you’re going to struggle more than others. … So if your company was healthy before you came into [COVID-19], you actually are going to be able to take hold of opportunities that others may not be able to. … What you were before the crisis is going to determine your ability to come out of this.”
– Jason Blumer
Businesses that were unhealthy before the pandemic struggled significantly more than thriving businesses. Although you can’t predict when a financial crisis will occur, you need to help your clients prepare for severe economic setbacks. The COVID-19 pandemic revealed that many businesses were struggling even before the pandemic hit. Numerous businesses realized that they were unprepared to face the financial crisis brought on by the economic shutdown, and many businesses closed because of it. Economic recessions and financial crises reveal how businesses are functioning:
“One thing this pandemic is teaching us is that possibly our businesses were not healthy enough to deal with whatever could blow up our world, right? … Warren Buffet said it this way. He said, ‘Only when the tide goes out do you discover who’s been swimming naked.’ … The pandemic is just revealing the fact that some of us were already unhealthy.”
– Jason Blumer
When facing a financial crisis, you may discover that you and your clients cannot navigate significant setbacks. Rather than operating strategically, you’ll be forced to work in survival mode during a crisis, which may mitigate damages, but will be unhealthy for future growth. You never know when another crisis will hit and devastate the economy. Learn from your mistakes and prepare your firm and your clients for future financial setbacks and economic catastrophes.
Developing your firm after making mistakes
Facing financial crises can be incredibly difficult for your clients, but they can also be difficult for your firm as well. Fortunately, you can learn from your experiences to improve your business, prepare for future recessions, and provide more valuable advice for your clients:
“We want to look hard at ourselves and figure out [if] we were … operating our businesses in an unhealthy way, and this is the thing I hope we learn and that we … fix.”
– Jason Blumer
Jason Blumer discussed the importance of working strategically within your business to increase the long-term value of your firm. He noted that people often evaluate businesses in the short term, but you need overcome others’ perception and work on your firm’s long-term value:
“A market can judge you. It’s perception can judge you, and it can be a wrong judgment, a wrong perception. … In the long-term, 30 and 40 years … you’re going to be weighed. Your value is going to be weighed. You’re going to be found to be valuable in the long-term commitment you make to the longevity of your company. And to do that, you invest in the processes and the things that make you healthy, and they’re called ‘principles.'”
– Jason Blumer
Your firm and your small businesses clients need to invest in long-term value by following certain business principles. Jason cited the billionaire Ray Dalio’s book Principles to discuss different essential aspects of expanding businesses. One key component of improving your firm and helping your clients is understanding the past to anticipate the future:
“[Ray Dalio] says [that] from years of wrestling with markets, he’s learned one’s ability to anticipate and deal with the future depends on the cause and effect relationships of the things you’ve gone through. And your ability to understand those cause-and-effect relationships are when you study how things have played out in the past. … What we don’t want to do is lose all of the learning we’ve gained through this crisis. And you guys are learning a lot. … Whether you know it or not, you are learning a lot.”
– Jason Blumer
Financial crises are incredibly revealing for the overall state of your business. Although your firm may have been unable to traverse a past financial crisis effectively, you can learn from your mistakes and anticipate the future to better prepare for financial crises and economic setbacks. You can also help your small business clients learn from their mistakes and improve their long-term value.
Learn more about what you can learn from a financial crisis
Jason’s discussion of operating your business strategically and learning from your mistakes during a financial crisis is critical for your firm and its small business clients.
If you’re ready to learn all about the different principles you need for growing and de-growing your business and learn tips for recovering from financial setbacks, check out Part Two and Part Three of this webinar article series. You can also watch the full webinar here.
Your firm may need additional assistance when recovering from an economic crisis or financial setback, and a critical step you can take is signing up for Gusto! Gusto is an integrated platform that automates payroll, benefits, and HR, and we also provide essential support for your firm. Our team of experts can help your firm and your clients strengthen your businesses and help you prepare for future economic recessions. Learn more about how Gusto can help your firm by visiting our Gusto for accountants page.
