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4 Money Moves for Small Businesses to Make Following a Crisis

Four Money Moves for Small Businesses

The COVID-19 crisis is bringing big disruptions to small businesses all over the U.S., but some companies are harnessing the situation to discover new opportunities for growth. If your business is still bringing in revenue and has a healthy balance sheet, emerging from the current pandemic could present new possibilities to make strategic financial moves.

Here are a few finance tips and insights to help your small business build a stronger future.

1. Shore Up Your Financial Foundation

One of the harsh lessons of the COVID-19 pandemic was that it showed just how many American companies did not have an adequate level of cash reserves to get through a short-term downturn in revenues. Help your business get situated for the future by strengthening your financial foundation in these key areas:

  • Build up your cash reserves: "Having extra cash on hand is always a good idea, especially in a crisis. If your business suffers a downturn in revenues or a cash flow crunch, you can dip into your cash reserves to see you through to better times ahead. Your cash reserves should be at least three months of expenses, and some financial experts even recommend six months," says First Horizon Bank's Head of Small Business, Business Banking and SBA Josh Folds.
  • Get a business line of credit: "Now could be a good time to apply for a business line of credit, if you haven't already. Getting a line of credit in place is a smart way to make sure your business has access to working capital and emergency cash. A line of credit can help 'float' your business expenses until normal operations resume," says Folds.
  • Draft an emergency plan: Another aspect of strengthening your business finances is writing a formal business continuity plan or emergency plan. This is a valuable way to plan ahead and organize your business operations in case of disaster or wide-scale disruption. Taking some time to think through the implications of disaster planning for your business can help you avoid confusion, delay and added costs if your business has to shut down or shift your operations in case of a crisis.

2. Talk to Your Banker About Cash Flow

When an economic crisis hits, many small businesses are inevitably going to flood the phone lines to talk to their bank officers about accessing loans and lines of credit. If your business is financially stable, it's best to stay ahead of the crowds by maintaining regular contact with your bank even before a situation occurs. Proactively schedule time to talk through your overall cash flow situation, future goals for growth and other evolving financial needs for your business.

"Having a banker who understands your cash flow cycle is important to evaluate the proper needs for that specific business," says Folds. "When your bank knows about your needs and goals, it can be more of a valuable partner for you, and it can continue to go deeper into understanding your business and recommending good financial solutions to meet any banking needs necessary to help the business grow."

Folds recommends biannual appointments to have those cash flow conversations.

3. Look for Opportunities for Expansion or Acquisitions

A crisis often exposes vulnerable companies that are left with distressed assets or bad balance sheets, which presents an opportunity for stronger companies. It's hard to know how to find the bottom of any economic downturn, but depending on your industry, market and financial strength, coming out of a crisis might be an ideal time to acquire another company or otherwise invest in new growth.

"Small businesses are having to get creative right now to keep the cash flow coming in, so those that are financially sound have a great opportunity to expand and gain market share," Folds says. If an acquisition is your ultimate goal, he says, be sure to evaluate the company's reputation, the current demand for their services and how well they are at adapting and pivoting to reach their target audience.

"And before you complete any business acquisition, it is important to have an accountant, attorney and banker all on the same page," reminds Folds.

"If you rely only on a handful of clients, you may be missing out on another audience of potential buyers who would be happy to hear from you and who need what you're selling." 
- Josh Folds

First Horizon Bank's Head of Small Business, Business Banking and SBA

4. Grow Your Client Base

Even if you're not in the market to acquire any competitors or make aggressive business expansions, emerging from a crisis is also a chance to diversify your streams of revenue. Use this moment to improve your social media sales and generate more referrals from your existing client base, or expand into new markets or industry verticals.

"Having a social platform for your business is mission critical at this point and can be a great channel for generating client referrals," Folds says. "Talk with your satisfied clients, reach out to them, and be proactive about asking them for referrals. All clients should be viewed as a center of influence; if your clients are happy with your product or service, this means you have already earned the right to ask for more business."

In addition to seeking out referrals from current clients, get more proactive about reaching out to other potential audiences to diversify your base of business, suggests Folds.

"If you rely only on a handful of clients, you may be missing out on another audience of potential buyers who would be happy to hear from you and who need what you're selling," he advises. By diversifying your pool of business, losing one or two big clients will not have as much impact on your bottom line, Folds points out.

5. Move Forward With Optimism

Despite the challenges posed by the current crisis, Folds says that many small business owners he's talking with are in good spirits and navigating the situation with optimism.

"Many small business owners now are focused on getting reopened and back on track, and many see this as an opportunity for growth and expansion as we get to the other side of this pandemic," Folds says.

All in all, the mood among business owners is cautiously optimistic. "This is a great opportunity to be working on a post-pandemic business plan to get out in front of the next 30, 60, and 90 days. The economy was doing great before this pandemic, so hopefully we all can get back to growing this economy once again."

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