smiling proud business owner standing near an open door with the sign, Open for business

There is a cost to Staying Open For Business, and that's a core risk to manage.

The Global Financial Crisis (GFC), the more recent COVID-19 Global Pandemic, and now inflation and rates heading north of 8%, have brought many things into the front of small business minds.

In response to financial crisis events, many business owners (and their families) had to find new ways to cut costs, deliver greater value and reduce margins and overheads, in response to tightening credit, slowing business spending, the growing inconsistent cashflow and the near runaway state of inflation, of the economy.

We all had to identify and reconsider what we believed were essential and non-essential costs to our respective businesses. But how do you decide what's truly essential and what's a 'nice to have'?

When it comes to small business, there are four business pillars that provide essential life support to an ongoing and profitable business.

And the first one is surprisingly often unknown to many small business owners and their accountants — the ability to insure 100% of all your fixed overhead costs, with Fixed Business Expenses insurance.

Read in this article

Staying in business means knowing your key numbers

The first key number to know in small business is, 'What does it cost to actually stay open for business every month?

To help you calculate this core business number for your small business, download our client Ongoing Fixed Business Expenses, worksheet. 

Millennial Businesses

Many younger Millennial Owner Businesses have never faced a GFC style of financial event that so negatively impacted small businesses and their owners. Many, were understandably unprepared – at least emotionally – for what older business owners recognised as a semi-regular financial crisis event that affects all businesses.

Costs to Stay-Open-for-Business are usually fixed

Managing an irregular cashflow with regular bills and expenses is the first and constant irritation all business owners face; even before being able to meet wages - regardless of pandemics and cashflow squeezers.

History repeats, again

Australia reported its first cases of COVID-19 on 25 January 2020, its first death on 1 March 2020.

  • Many Millennial Business Owners up until then, hadn't personally experienced (and therefore doubted the existence of) a global credit squeeze. Akin to the 2007-2008 Global Financial Crisis (GFC) subsequent recessions and stock market crashes (the most recent on 20 February 2020), 2022-3 saw the start of interest rate rises – something an entire generation has never seen before – with the Reserve Bank prioritising fighting inflation over maintaining growth, as a way to absorb liquidity from the economy, with the future now threatening our first recession in 30 years.
  • Older small business owners may recall the Australian economy had a period of housing mortgage interest rates of 19%+ (does the name HomeFund ring a bell?) and other economic downturns from the 1990s.

Hope is not a business strategy

During the COVID-19 Pandemic, we also had to fight the very human urge to “simply stop all spending (unless it was for hoarding toilet paper), bunker down and do nothing while we waited for an uncertain future to arrive.

The unintended consequence of this siege mentality was, many owners of small to medium businesses ended up neglecting the ongoing health of their businesses and put themselves behind when the inevitable economic rebound matured 18 months later.

For those who became sick and unable to generate their income, their fixed business overheads - those expenses that keep-the-doors-open-for-business, absorbed cash reserves and further weakened the business's financial position to face the demands of the economic recovery.

Spending money to make money (and just Staying-Open-for-Business)

Small business owners are not known for their lavish approach to spending surplus funds in the same way as the corporate cousins may approach this corporate credit card and long lunch budget. SME owners want to extract maximum value for every expenditure and you might say they think more like a creator and less like a consumer.

  • The commercial reality is most businesses need to continually spend money to make (and maintain) their money.

Marketing, repairs and maintenance, consumables, plant and materials, rent and leases and contract services, from accountancy through to staff wages and insurances - these regular predictable expenses are the cost of just staying open for business.

Pro Tip: Most fixed overhead costs in a business are contractual in nature and tethered to annual agreements and recurring subscription services.

  • These stay-open-for-business-costs usually make up 15-30% of a small business.
  • This percentage will also depend on the industry and type of business. For example, a service-based business will have a lower overhead percentage than a manufacturing business.

Fixed Business Expenses Insurance | Christopher & Matthew's Story

case study insuring fixed business expenses Matt and Chris

A few years ago, we spoke with a family who ran a fleet of small refrigerated delivery vans, as part of their small business.

Run by two brothers, Christopher and Matthew, Christopher was responsible for the contractors, accounts and supply chain agreements, and Mathew the refrigerated trucks. Matthew rode dirt bikes on weekends to manage his stress and was naturally mechanically minded but didn’t always understand the paperwork he left his brother to manage for him. All the vehicles were used to cross-secure each other's lease arrangements, so if one truck were to have an accident, it could put at risk the other vehicles commercial arrangements.

  • The question: One month, Christopher wanted to let the insurance on one of the bigger trucks lapse until after Christmas due to cashflow issues.
  • The problem: Up until now, each brother's stated backup plan for their own families was; “If we ever have a financial problem, we’ll just sell one of the trucks.”

As Matthew didn't always take an interest in the details and administration of the business, he was not aware of three key considerations that were about to put him and his family at significant risk.

  1. All the trucks were leased or highly leveraged, and all were used to guarantee and cross-secure debts for the others.
  2. During a time of financial stress to the business, selling an income-producing asset would then also reduce their income, reduce the number of assets they could use as security for business loans, and may even require they find the funds to payout the final lease balloon payment on a vehicle too. All this would reduce any additional cashflow released from the sale of a truck.
  3. The remainder of the business debt was secured by personal directors' guarantees and mortgages over each of the brothers homes. What they also didn't consider was, as part of their bank's financial package, the truck loans were considered ‘at call loan facilities’ and all would be called in for payment within seven days of either the death or total disability of a business owner or key person too.

Unintended consequences of quick decisions: The risk they were considering was not a considered commercial risk, (where they could still financially recover if unsuccessful), but a quick gamble, where this decision could financially destroy both families and strip them of their assets and hope for a predictable future

  • Simply put, one problem with one truck could trigger a domino effect that could be financially catastrophic to the business and the brothers’ families.

What you haven’t been told about can hurt you

Their accountant had never told them about Fixed Business Overheads Insurance, which can pay 100% of a business's fixed costs if a business owner (or its Key people) were sick or injured and unable to work.

This was a sensible commercial opportunity that could significantly reduce the risk of having to continue to pay a business's ongoing fixed costs if sickness or accident stopped one of the brothers from working in the business, which they had never been told about by their accountant.

The outcome: The brothers put Fixed Business Expenses insurance in place that covered 100% of their fixed – usually contractual – costs of running the business – including vehicle leases.

  • This allowed both families to sleep at night knowing that, if something were to happen, they didn’t have to ‘sell an income-producing asset’ and hope they could survive the domino effects of a quick gamble.

Christopher and Matthew are now looking for another Accountant, one more in touch with the needs of a small business owner.

Support a small business

Many small businesses are known for their compassionate approach to the community. We remember where we came from and where we live, our involvement with our local cash-strapped schools, sports clubs and even volunteering for the weekend BBQ at the local hardware store, raising support and awareness for a community cause, club or concern.

Small businesses really are the backbone of the Australian community and the studies show near identical reality as being the norm across the world. Knowing what your core number is for Staying-open-for-business is a core skill to learn and risk to manage.

Protect a small business

Fixed Business Expenses insurance helps make that risk significantly more manageable and protects everyone who relies upon your small business for income, products and services and employment.

(Hug a small business owner today and say thank you for caring.)

Key takeaways

  • Always protect what you cannot afford to lose – your health and family
  • Protect the very thing that generates your income – your business
  • Know your Fixed Numbers – What’s the fixed cost of staying open for business?
  • Always know the answer to this question: “Can you pay that fixed number for 12 months if needed, without adversely affecting business cashflow?”


author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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