Running a business comes with ups and downs, but what happens when your numbers dip into the red? Don’t panic, there are actionable steps you can take to turn things around! In this episode, host Danielle Hayden, founder and CEO of Kickstart Accounting, Inc., breaks down what it really means to be "operating in the red" and, more importantly, provides practical strategies on what you can do to regain profitability.
Learn how to identify the root cause, make smart adjustments, and build resilience for the future. Whether this is a short-term hurdle or a bigger challenge, we’ve got you covered with exact steps to help you get back on track!
Key Takeaways:
- What is “Operating in the Red”: "Operating in the red" means your expenses are higher than your revenue. Knowing how to identify it in your financial statements can make all the difference in regaining profitability.
- Assess the Causes: Determine if your situation is due to a one-time expense, seasonality, a market shift, or something else entirely to take the right action.
- Cut Smart, Not Hard: Reduce non-personnel expenses first before making decisions that may negatively impact your team, efficiency, and/or business growth.
- Build a Cash Reserve: Having a financial cushion can help your business weather slow periods and unexpected costs.
- Mindset Matters: Shifting your perspective on financial setbacks can empower you to take proactive steps instead of reacting out of fear.
Topics Discussed:
What Does It Mean to “Operate in the Red” (00:00:39 – 00:02:11)
Assessing the Causes of Profit Loss (00:02:12 – 00:07:39)
Determining Where to Cut Expenses (00:08:24 – 00:10:06)
Identifying the Problem and Learning from It for the Future (00:10:08 – 00:14:12)
Managing Your Money Mindset Through Tough Times (00:14:12 – 00:20:03)
Resources:
Episode 75 | Finding Profitability in Your Business
Expense Grading Worksheet | https://kickstartaccountinginc.com/grading
Money Mindset Mastery Program | https://www.e-suite.co/money-mindset-mastery-sales-page
Kickstart’s Courses | https://www.e-suite.co/our-programs
Book a Call with Kickstart Accounting, Inc.:
https://kickstartaccountinginc.com/book
Connect with Kickstart Accounting, Inc.:
Instagram | https://www.instagram.com/Kickstartaccounting
YouTube | https://www.youtube.com/@businessbythebooks
Facebook | https://www.facebook.com/kickstartaccountinginc
Episode Transcript
00:00:00:00 - 00:00:30:20
Danielle Hayden
Hello and welcome back to Business by the Books, the podcast that teaches you how to use your financials to better manage your business. I am your host, Danielle Hayden. I am the founder and CEO of Kickstart Accounting, Inc. So today we're going to be talking about what to do when you are operating in the red. You know, of course, I will define what that means for you and give you plenty of action steps
00:00:30:20 - 00:00:56:12
Danielle Hayden
so that you can go and implement them right away. No bias around here, just strategies and action. So first of all, what does operating in the red mean? I was asked this question several times recently. I am the finance expert in Christa Gurka’s Inner Circle group coaching program. So shout out to Krista. I love you and the ladies in your program.
00:00:56:12 - 00:01:19:18
Danielle Hayden
And this is a question that had came up a few times in that group on what to do if you notice you have 1 or 2 months of operating in the red, and how do you know if it's a bigger issue and what strategies to use? So operating in the red, that means when we look at our income statement by month, that we have a month that shows a loss.
00:01:19:19 - 00:01:43:21
Danielle Hayden
So this is something that's really easy for you to read if you are doing your bookkeeping, which I hope you are not as a CEO, founder and business owner. But if you are, you want to make sure all of your bookkeeping is done correctly and accurately. Once you know that the bookkeeping is actually complete, you will run the profit and loss by month.
00:01:43:23 - 00:02:02:09
Danielle Hayden
And if you are a client of Kickstart Accounting Inc., you receive your financial statements at the end of each month or quarter with the Snapshot, so you have this information. And if you have another money team, ask them for your profit and loss by month. So you'll scroll all the way down to the bottom of the PNL,
00:02:02:09 - 00:02:27:22
Danielle Hayden
and in there you will see this month, if you have a loss, that means you are operating in the red. What we want to do, the first step in this framework, is that we understand if it's short or long term. We want to understand is it a one-time issue, is it a season, or is there a bigger shift in the market that we need to pay attention?
00:02:28:00 - 00:02:57:10
Danielle Hayden
So if at one-time this might look like you had a large insurance payment or a large annual subscription, you paid bonuses to yourself or your staff, you had a dip in project revenue. There is a situation that's causing a one-time loss, right? There's a one big issue, one big expense that happened. A season might be up to three months of a decrease in sales.
00:02:57:10 - 00:03:21:02
Danielle Hayden
So a lot of our clients have seasonality in their business. Now I'll speak for Kickstart Accounting because I am the CEO there, we have a seasonality in summer. It is like every business owner I know, every single one of our clients, they are on vacation. They are taking that time with their children. They're taking that time to rest and restore it, which I'm so happy to hear.
00:03:21:02 - 00:03:45:22
Danielle Hayden
As business owners, we need to find that balance, and so I want our clients and I want business owners to be taking that time. However, it results in a seasonality. And so for your business, it's really important that you understand whether or not your industry and your business in particular has that seasonality. Just because you have that seasonality doesn't mean your entire industry does.
00:03:46:00 - 00:04:06:01
Danielle Hayden
And just because your entire industry has that seasonality doesn't mean that you will. So what is your business have? And you can see this by going to your profit and loss by month for prior year. So like that's the biggest benefit of having your numbers for multiple years. I love when clients come to us and they say I need a catch up.
00:04:06:01 - 00:04:34:15
Danielle Hayden
So if we have a new client, they'll come and say, I know I don't have my bookkeeping done, I know I did my taxes, but I really can't see that historical spending trends or income trends, so I want to do a catch up. And that catch up process is going back in time to make sure that all of your information is in QuickBooks accurately, so that we can then see, do we have large seasonality, and then we can also predict those time of the years that we're going to have those large one-time expenses.
00:04:34:16 - 00:04:54:13
Danielle Hayden
Now again, I'll speak to Kickstart because I'm the CEO there, we have a lot of one-time expenses in the spring. So April-May time frame. So that is always a time where we know that we need to have a cash surplus saved, because that's the time that a lot of our one-time expenses are coming up. And so we need to be prepared to pay that.
00:04:54:14 - 00:05:13:09
Danielle Hayden
But you can see the importance of being able to look backwards, to be able to see forward. Looking backwards helps us see the future so we know that we have a time of the year where we have a large amount of one-time expenses, and we know that we have seasonality. So now we can prepare for both of those.
00:05:13:09 - 00:05:36:09
Danielle Hayden
Now, when we're looking at the profit and loss by month, if you have more than three months, especially right in a row where you have a loss, this is the time that we might want to consider if we're having shifts in the market, if there's a larger industry issue, and if we need to be aware of anything bigger, right?
00:05:36:09 - 00:06:00:10
Danielle Hayden
We need to start taking action. I will give you clear action steps to take, but I want to pause before we go any further on helping you understand one big concept that might contribute to your profit or your loss this year, it's really important that you understand your numbers. And what I mean by this is that, did you just become an S Corp?
00:06:00:10 - 00:06:27:10
Danielle Hayden
In the last year or two? We've had so many clients understand finally the benefits of being an S Corp and have grown to a point where they decided to become an S Corp and enjoy those tax benefits. I'm so excited for these clients. However, your draws that you were taking historically, so when you were taking owner's draws, you are going up to the cash ATM of your bank and just taking out a draw.
00:06:27:16 - 00:06:48:19
Danielle Hayden
It wasn't an expense to your business and it didn't show up on your income statement. So if you went and took out a $10,000 draw in the month of July, you wouldn't see it on your income statement this year. If you took a $10,000 payroll, it's going to show up as an expense. It's going to lower your profitability of your business.
00:06:48:21 - 00:07:12:13
Danielle Hayden
So it's really important to understand if you just became an S Corp, you're not really comparing apples to apples, right? You need to work with your money team to make sure that you understand the impact and what the your money team can do is pull out your payroll and show you what it would look like apples to apples, or take your draws and add them to your previous year income statement.
00:07:12:15 - 00:07:37:11
Danielle Hayden
So again, you can see that comparison apples to apples. It's really important that we understand if we're having a market shift, right? Like, do we need to take action or is this just because we made some changes in how our business fundamentally operates? Once you determine that, it's not because of one-time purchases, it's not seasonality, and it's not because you became an S Corp, it's time to react.
00:07:37:11 - 00:08:01:17
Danielle Hayden
Now it's time to take action. I don't want you to wait too long, right? So this is why it's so important that you receive monthly financial statements. This is why it's so important when your money team send you your financial statements that you open the email. I know, I see you, I hear you, I know that you guys avoid us.
00:08:01:19 - 00:08:24:09
Danielle Hayden
Open the email and look at what we're telling you, because I don't want you to wait. As a visionary, it is important that you are not too optimistic for too long. Yes, it's your job to keep the energy and the vision and the passion alive in your business, but you don't want to do it at the detriment of your business succeeding.
00:08:24:15 - 00:08:50:01
Danielle Hayden
So don't take too long to make cuts. So once we understand that we have to take action, it is time to make cuts, and what cuts do we need to make? I suggest that you make non-personnel cuts first, and you can use the expense grading worksheet that we have provided. There's a whole episode on how to find profits in your business,
00:08:50:01 - 00:09:15:13
Danielle Hayden
episode 75. We will link that in the show notes, and you can grab your expense grading worksheet there, as well. Now the expense grading worksheet will walk you through how to make cuts to your business without touching personnel. So we want you to touch non-personnel expenses first. I know that you have worked so hard as the CEO.
00:09:15:15 - 00:09:39:16
Danielle Hayden
You've worked from being the practitioner, the sole provider to becoming the CEO of your business, and in doing that, you had to delegate and find people who you love and trust. You needed to find the bookkeeper, maybe a marketing person. You needed to find your contractors, your VA, your OBM, like you needed to find people to help you succeed in your business,
00:09:39:18 - 00:10:05:13
Danielle Hayden
and I don't want you to cut them first. Okay, so we're going to use the expense grading worksheet. Cut non-personnel expenses first. I know that this is hard. Cuts hurt but you can come back right. Like, you can go back to those vendors, the subscriptions, those outside contractors, but I need you to survive. First you have to survive this market shift and then you can come back.
00:10:05:13 - 00:10:32:09
Danielle Hayden
Then you can add back those expenses. During this time, you're going to be surprised to hear me say, I want you to start to build a reserve of cash. This is the time that's really important for you to start to build a runway of cash. We need to be talking about side funds so that as the market continues to shift, that you have cash to be able to support your business.
00:10:32:11 - 00:10:57:10
Danielle Hayden
So this is the time that maybe we're not doing any bonuses. We're cutting back on owner’s draws. We're really taking out the luxury purchases within our business. We're focusing on what we need to survive so we can focus on paying our people and building a cash reserve so that we can survive the next time and ask you to determine your number one problem.
00:10:57:12 - 00:11:19:16
Danielle Hayden
During this time, I know that you might be in a fearful state, right? You might be scared, and I don't want you to let your fear and the scaries take over. I think once we get scared, we have a tendency to throw everything at the kitchen sink. I need to change everything, right now, and I want you to resist.
00:11:19:18 - 00:11:44:18
Danielle Hayden
You're going to cut non-personnel expenses and you're going to focus on one problem so that you can learn and focus on one problem. So if you've had a decrease in revenue, is this an advertising a marketing problem? Is this a shift in the market? Like, really ask yourself some deep questions so that you can find out your number one problem.
00:11:44:20 - 00:12:21:17
Danielle Hayden
Maybe you had a referral partner who you had been working with the last few years, who their business had shifted and changed. Their industry has changed, and so they're no longer able to refer business to you. Maybe you had a lead generation source. I know this happened with Facebook a few years ago with the iOS change, and I watched so many businesses, their ads immediately stopped, they stopped working overnight, and all of those businesses had to understand that that was their number one problem, refocus, learn, and rebuild.
00:12:21:17 - 00:12:49:00
Danielle Hayden
So is this an advertising and marketing problem and what is causing that problem? Right? We have to ask ourselves some really deep questions so that we can focus on solving one problem. You are going to focus and learn everything you possibly can about the one problem. And at the end of the quarter, you can ask yourself what worked, what didn't work, what should you keep doing and what should you stop doing?
00:12:49:02 - 00:13:20:08
Danielle Hayden
And then we'll have another focus, we’ll refocus for another quarter. It's really important that we don't change everything. One more time: Do not change everything. Do not get scared and stop spending. We need to keep our investments that are building and contribute to our business thriving. Don't cut off those sources. Don't cut off the flow of cash to those sources because you are scared.
00:13:20:10 - 00:13:43:06
Danielle Hayden
Focus on one problem. I want to give you some questions for reflections as you create this analysis. As you look at your numbers, as you determine how much cash you need and determine your number one focus, here are a few questions for you to think about: What are the lessons in this valley or season? Now this could be a season of downturn in your business.
00:13:43:06 - 00:14:05:20
Danielle Hayden
This could be a long season. This could be a long, slow season for you. And what are the lessons in that valley? What is the lessons in this thunderstorm, the season that we're in because it is going to be over, right? You are going to come back out and the season is going to change again, right? Summer comes back around every single year.
00:14:05:20 - 00:14:33:10
Danielle Hayden
So as we're in our winter, what are the lessons that you can learn from this winter? And I want you to change your story, rewrite your stories that are keeping you stuck. Every single one of us has money mindset stories that are keeping us stuck. It keeps us from spending money when we need to. It keeps us in a emotional spending roller coaster.
00:14:33:12 - 00:15:11:13
Danielle Hayden
It is important that you understand your money story and how it's contributing to this season to operating in the red, right? How is your money mindset story contributing to this current loss? It is time to rewrite your money story. If you don't know where to start, I encourage you to check out our Money Mindset Mastery program, where we walk you through the specific strategies to use to rewrite your story so that you can become unstuck, get out of the emotional spending roller coaster, and release the funds right?
00:15:11:13 - 00:15:41:11
Danielle Hayden
Release the money. Start spending so that you can start to see your business change. If you're interested in that, I'll put the link in the show notes, KickstartAccountingInc.com/courses. And then I have a question for you: Are you outworking everyone? I know this is a little cliche right now when we're talking about balance and burnout, but if you had success previously and stopped, what were you doing then that you're not doing now?
00:15:41:13 - 00:15:57:15
Danielle Hayden
Right? I just want you to look at your calendar. I want you to look at the meetings you held. I want you to look at the travel that you were participating in. Who were you hanging around with? Were you taking better care of yourself? Right? Were you going to the gym in the morning? Were you meditating?
00:15:57:15 - 00:16:26:10
Danielle Hayden
Were you learning? Were you a lifelong learner at that time that might have changed? And this could be a season as well. And we need to come out of that season and learn what created, what helped us find success previously and tap back into that. If you stopped learning, I want to encourage you to think about what is the one thing that you want to learn about right now?
00:16:26:12 - 00:16:49:07
Danielle Hayden
Reengage. Spark the passion and the desire in you in your business. If you are not hanging around people who are bringing out the best in you, and I want you to look around, look to your left, look to your right, who do you have around you? What meetings are you attending? Let's change our workload. Let's change what we're doing.
00:16:49:09 - 00:17:19:12
Danielle Hayden
Are you being consistent now? We work with so many visionaries and entrepreneurs who say, squirrel, squirrel. I know, I'm a quick start, too. I have shiny object syndrome, too. I do a lot a lot of internal work to rein in my squirrel to keep myself consistent. My word of the year for the last three years has been consistent, and I do that intentionally.
00:17:19:12 - 00:17:51:11
Danielle Hayden
I make sure every year I don't change my word. I want to be consistent. I want to show up for you consistently. I need to show up for my team consistently. For the last nine years, what we do as a firm at Kickstart Accounting Inc. has been consistent. We do bookkeeping. We use bookkeeping as a tool to help women understand their numbers, to make better business decisions, grow their businesses, and make an impact in the world.
00:17:51:11 - 00:18:17:05
Danielle Hayden
Nothing's changed. We do offer courses now. We do offer some CFO services, and we do offer tax planning. But it's consistent. Who we are is consistent. The core, the mission has never changed. And can you hear my energy? It's because I'm really freaking passionate. So I want to ask you, are you bringing the energy? Are you bringing the vision and leading the ship?
00:18:17:07 - 00:18:51:09
Danielle Hayden
It is your job that even when you're scared, even when you're in a fearful state, that you don't let it take over. You have a choice. Being scared is a choice. You need to start asking yourself empowering questions and start visualizing success. Bring the energy to your team to your clients, to the people who you support. Lead the ship out of this fearful state and then stop the justification, right? You guys know, I am all about tough love.
00:18:51:11 - 00:19:13:16
Danielle Hayden
Just because everyone else is feeling it doesn't make it okay for you, right? You might be hearing on the news that there's a recession, you might be hearing in your entrepreneurship communities or your mastermind that other people are down, that sales aren't what they were last year. We're seeing this a lot in the online world. It doesn't mean that it's okay for you.
00:19:13:18 - 00:19:36:10
Danielle Hayden
I know that since you're listening to this podcast episode, you are going to outlast the downtimes. You are going to be the one who makes it through. There are amazing companies who started and grew in the recession, and I want it to be one of you. Because you're listening, I know it will be you, because you are going to know your numbers and you're going to stop this podcast episode when
00:19:36:13 - 00:20:01:09
Danielle Hayden
we're done, and you are going to go take action. You're going to start asking yourself empowering questions. You're going to visualize success, gain control of your money mindset, and learn from your numbers so that you can have an impact. I want you to stay with us. I want you to survive this winter. I want you to survive this season.
00:20:01:14 - 00:20:36:12
Danielle Hayden
We will get through it together. If you enjoyed this episode, I ask you for one thing. I will continue to come back week after week and give you this free resource. All I ask is that you like, subscribe, and share this podcast with one other person. Maybe you take a screenshot, share it on your Instagram Stories, tag us at Kickstart Accounting and I will continue to come back for you and answer your questions and share everything that we're learning every single day as a CEO at Kickstart Accounting, Inc.
00:20:36:14 - 00:21:08:01
Danielle Hayden
Thank you so much for your time.