"Do We Need This?" What a Global Pandemic Has Taught Businesses and Individuals About Spending
At the time of writing this, the world is more than 7 months into experiencing a once in a century global pandemic (COVID-19). With no real solution coming in the near future, it's a great time to take a look and see what can be learned from this experience. In recent months I have been working with my clients and examining their financial position throughout the year and understanding the impacts that COVID has had on their business. While there are certain industries and businesses that are severely impacted by COVID due to strict regulations (such as limited in-person capacity for restaurants and retailers), or additional medical precautions that may deter ordinary customers, other businesses are doing just fine during the pandemic. In fact, many of the businesses I work with are seeing an increase to their bottom line despite a decrease in overall revenues. Today we are going to examine this and see how the pandemic can serve as a case study for what is actually necessary in terms of spending.
What's Going On?
As a result of the pandemic, businesses and individuals are being forced to conduct themselves differently in the name of safety. For a business, this could mean having all employees work from home and eliminating travel engagements, or reducing the number of client-facing meals, meetings, and events. For an individual, this could mean working from home (and possibly moving out of the area entirely), and spending less money going out for social events and meals. In either circumstance, the result is likely to be cost-cutting, where the business or the individual will function in the "new normal" while spending less money than they did previously.
What Can We Learn from This?
Now that businesses and individuals are functioning within the scope of the “new normal”, it has become clear that a certain level of results can be achieved by functioning differently and spending less money. As the old saying goes: "a penny saved is a penny earned!" and this is no different. For every dollar not spent on something that is unnecessary an extra dollar can be directly saved or brought down to the bottom line.
As a result, many are asking themselves the question: "did this money ever need to be spent?" Depending on the circumstances, the answer to this question could be:
No, it didn't need to be spent at all (extra expenses that were cut to save during the pandemic).
No, now that it's been discovered that the same result can be achieved through different means (such as working from home or teleconferencing).
Yes, but the only reason it's not being spent now is because of the pandemic (social events and client interactions that will return once it is safe to do so).
Yes, and it’s still being spent regardless of the pandemic.
Every C-suite level executive that I have talked to in the past few months shares this sentiment to some degree. The pandemic is acting as a case study to learn how businesses can function in this new normal environment. Businesses are now thinking how they can cut down on travel and invest in teleconferencing and software, or cut down on office space and let people work from home (now that they've proved it is effective enough). Similarly, people are learning similar lessons by moving to a lower cost of living area to work remotely and cooking more of their meals since they cannot go out as much.
Although not everything will stay this way once the pandemic passes, it is critical that businesses and individuals assess how things can change going forward. So, I challenge you to do this, ask yourself these questions:
What does life look like during the pandemic?
Are you working remotely?
Did your business change its model to adapt to new regulations?
How will it change once the pandemic is over?
Will you have to go back to work?
Do customers prefer the new business model to the old one?
Are the adaptations that you've made during the pandemic something that can be maintained once it's over?
Can you continue working remotely from a lower cost of living area?
Can some conferences or events be replaced through online meetings?
By thinking through these questions, you can use your own experience as a case study to figure out the best way to move out of the pandemic. Whether it be for your own personal finance or for your business, it is important to understand that your world could change as a result and you need to be prepared to change with it.