As a business owner, you anticipate there being certain challenges to growth along the way. But prior to the COVID-19 outbreak, a global pandemic likely wasn't on your radar.
The impact of the coronavirus's spread to small business has been far-reaching. According to a U.S. Chamber of Commerce special report, nearly half of small business owners – 46% – said they believed an economic return to normal would take six months to a year to complete.
While COVID-19 put a damper on many businesses, the pandemic represents a learning opportunity for business owners. By looking at your financials most affected during the pandemic and reshaping your strategy, you can help your business become more resilient in the face of a crisis.
1. Emergency cash is king.
For many businesses, COVID-19 resulted in a sudden drop in revenue as state and local governments curtailed business activity. While 28% of business owners said they had the capacity to stay open indefinitely amid the pandemic, according to the Chamber of Commerce report, the vast majority faced a temporary or permanent shutdown.
In an emergency situation when your cash flow suddenly grinds to a halt, savings can be a lifeline. Having cash savings you can tap into to cover operating expenses can relieve some of the financial pressure you might be experiencing. For instance, you may be less likely to lay off associates or default on business debts when you have cash to fall back on.
Adding money to your business savings account consistently each month can help you grow your emergency cushion over time so you're better prepared for the next crisis.
2. The leaner your budget, the better.
Another key lesson from COVID-19 is the importance of having a streamlined budget. The fewer expenses you have to pay throughout an emergency or crisis situation, the easier it can be to get through it without having to make drastic cuts to your business, such as laying off your staff.
Take time to review your business budget and spending. Look carefully at everything you spend money on in a typical month. Then ask yourself whether those expenses are essential or if they could be eliminated.
For the expenses that you have to keep, consider what you might be able to to reduce them. For example, you might explore the cash management or payroll solutions offered by your bank to replace your existing accounting and expense management system. That can help make your business systems more cost-efficient while potentially saving you time as well.
3. Use debt strategically.
COVID-19 relief made financing more accessible for small businesses with the expansion of the SBA Disaster Loan program. According to the Chamber of Commerce report, 41% of businesses said they would likely need loans or financing to get through the crisis.
While loans and lines of credit can help fill the gap financially, it's important to be strategic when using them for your business. Rather than waiting until a crisis hits to try and apply for a loan, for instance, you could establish a business line of credit with your bank when business and the economy are good.
Having a line of credit on standby means you're not scrambling to get a loan when other business owners are doing the same. And if you've built up some savings and reviewed your budget, you can be more selective in how you use your line of credit to manage business expenses throughout an emergency situation.
4. Build good vendor relationships.
You rely on your vendors to supply you with what you need to run your business, and it's important you don't neglect those relationships. And, in tough financial times, your vendors may be having difficulties just like any other business.
Building good connections can go a long way when finances are tight. For example, your vendors may allow you to establish a tradeline with flexible payment terms or adjust the terms of a credit line you already have when cash flow becomes inconsistent. Or, they may be willing to extend discounts to you to keep your business.
You can work on improving vendor relationships by keeping the lines of communication open so they know what you need and vice versa. Paying on time or paying early whenever possible can also help strengthen your connections.
5. Be ready and willing to adapt.
COVID-19 put many business owners and their associates in the unique position of working from home for the first time. It's a perfect example of how important it is to be able to adapt and innovate to keep your footing during periods of economic uncertainty.
Consider what that might look like for your own business if another crisis situation were to occur. Would you be able to pivot your business and offer new services or deliver existing services and products in a new way to maintain your client base, for example? Or, would you be able to shift how you and your associates work if needed?
Brainstorming ideas for how you could adapt in a worst-case scenario can help you prepare for things like needing to work remotely, adding to your product or service line, or meeting client needs digitally versus in person. And, you can also be forward-thinking about what you can do to outpace the competition should another widescale event like the COVID-19 pandemic happen.
Consider talking to your business banker about possible solutions for managing cash flow now and during a crisis. He or she can help you shape a financial contingency plan to keep your business as healthy as possible during trying times.