Recession-proofing Your Writing Biz

There’s been a lot of talk of the current US recession. And that’s got a lot of writers worried.

How bad will it be?

Who knows?!

Economists have a horrible track record of predicting these things. They’re good at connecting the dots after the fact. They can explain what happened and why.

But forecasting booms and busts with any degree accuracy?

Let’s just say the weatherman has a better track record.

The good news is that there are things you can do to weather tougher times. And interestingly enough, they’re things you should be doing anyway — even if a recession is not imminent.

Here are three ideas you can start implementing right away.

Adopt the Envelope System

The first thing is to adopt the envelope system in your business. Financial expert Dave Ramsey gets credit for popularizing this concept, but it’s been around for ages.

The idea is to divide every check you get from clients into separate accounts (or “envelopes”) based on predetermine allocation percentages.

Say you get a $5,000 check. Rather than depositing the whole amount into your business checking account and leaving it there until you need it, you divide that $5,000 into different accounts and transfer those amounts into their respective checking accounts.

For a $5,000 deposit, those account transfers might look like this:

·        $3,000 goes into your compensation account (to pay yourself)

·        $250 goes into a profit account (from which you’ll pay yourself a bonus every quarter)

·        $750 goes into your business expenses account (to pay your business expenses)

·        $1,000 goes into your tax account (to pay your taxes)

(The allocations percentages you set are up to you, your specific situation and the income tax rates where you live. Don’t get hung up on the numbers here; focus on the concept.)

The envelope system creates a set of constraints that forces you to live and to run your business based on reality, not on some fantasy. It’s helped millions of people manage their finances better, including me. I can’t recommend it enough.

Pay Yourself a Fixed Salary

Second, start living on a fixed monthly salary (or “draw”). As I explained above, you’ll want to transfer a fixed percentage of everything that comes into your main business account into a separate compensation account. You’ll then pay yourself every month from your compensation account.

When you do this, you’ll start building a buffer when there’s more coming in than going out. That way when you have a light month or two, you’ll have enough of a cushion in your compensation account to still pay yourself your fixed salary that month.

Plus, when you learn to live on a fixed amount every month (rather than on whatever balance you have in your business checking account), you’ll develop greater financial discipline. And that will help you spend more on the things that matter most to you ... and less on those that don’t bring you joy.

Go After Clients That Are Well Positioned

Third, start going after clients that sell products or services that add tangible value to their own customers — especially during tough times.

In other words, go after businesses that sell products or services their customers deem “important” or “urgent” (as opposed to “nice to have”).

For example, a company that helps retailers implement systems and strategies to slash their energy costs by 15-25% is selling an important or urgent solution.

Compare that to a company that sells programs that help boost employee morale. Sure, the program might have a proven return on investment. It might be a very popular idea. But that’s often the type of thing that companies cut first when the economy starts going south.

You want to have clients that are well positioned to win in a downturn. One such client saved me from financial disaster after losing more than 50% of my writing income in the 2008 recession.

Are there other ideas? Of course. But start with these three. And you’ll be very well prepared for whatever happens this year and beyond ... good or bad.

Have a great week!

Ed Gandia

High-Income Business Writing