How small businesses can navigate the coronavirus economy
Operationally, financially and emotionally, the aftershock of the COVID-19 pandemic will be felt by small businesses for years to come. With lockdowns ongoing in many states, an economic downturn near-certain and no clear timeline for when things will return to normal, many small business owners are looking for a light at the end of the tunnel.
Yet, hard as it may feel, by focusing on three key elements of financial planning, business owners can navigate the current crisis and give themselves the best possible chance of recovery.
The first area is revenue — or put more simply, how to keep selling to customers during an economic shutdown. Solving this problem requires businesses to get creative. For example, if it’s a retail or restaurant business and selling products isn’t an option right now, offering gift cards is a great way to get money flowing in for transactions that will happen in future. Providing carry-out or delivery services can also be highly effective in generating income without serving customers in-store.
The key is to start with the individual circumstances of the business and customer base — then innovate from there. For example, some car dealerships are offering unaccompanied test drives, cell phone companies are walking customers through their new purchase over the phone and some doctor’s offices have developed a text messaging system that guarantees only one patient is in their waiting room at a time.
That’s not to say it’s easy — but it is possible. And in case it all seems overwhelming, small business owners should take heart that many of their regular customers probably want to help. We’re seeing a growing desire among consumers to spend money at their favorite local restaurants, retailers and service providers so they’re still around to patronize when social distancing guidelines are lifted.
While the most effective ways to keep generating revenue will be unique to each small business, the need to rigorously manage the cost side of the ledger applies to everyone. After all, no matter what businesses are spending on, expenses are expenses. Here, the key principle is to separate the essential from the discretionary — then prioritize accordingly. Staff salaries, vital materials and building rent will all fall into the “essential” category, but perhaps the new paint job for the storefront can wait. Businesses should try to avoid purchasing on finance right now, too. If the crisis continues and a business falls behind with repayments, it could impact its ability to secure credit in future.
Even within the essential items, there may be opportunities to be smart about expenditures. Many vendors — most of which are likely to be larger companies with the necessary capital reserves to ride out the pandemic — are offering delayed payment terms for small businesses they supply, which could help them negotiate some crucial breathing space until things begin to recover.
Many small business owners are worried about having to lay off employees, only to see them land another job and become unavailable to re-hire further down the line. Business owners should prioritize retaining their most business-critical staff wherever possible, regardless of seniority.
Of course, not all the solutions lie within a business’s own four walls — particularly when it comes to the third and final area of focus: access to capital. Small business owners should investigate eligibility for a loan as part of the Paycheck Protection Program. Businesses should recognize, too, that many states, cities and small business associations are offering their own stimulus packages for local businesses, so they should be sure to cast the net wide and investigate what help may be available closer to home.
Beyond the option of governmental support, there are other creative ways to boost capital reserves using a business’s own assets. For example, a number of companies are offering to buy equipment from small businesses for a lump sum and then lease it back to them for a monthly fee, often with the option of buying it at the end of the agreement. Such opportunities could offer businesses a vital cash boost while ensuring they still have what they need to run their business.
It’s also worth talking to a tax advisor about deferring payments to next year or even re-filing last year’s return in order to offset any financial losses businesses are incurring now. This can reduce their overall tax bill and may even lead to them receiving money back. Similarly, a CPA can provide guidance on the possibility of accessing cash in their life insurance policy as a loan — another way to inject some short-term capital into their business.
Solutions are out there
Of course, there are no hard and fast rules here. Every small business is being uniquely challenged by this pandemic, and the truth is no one knows how long it will last, nor what the long-term economic effects will be.
Yet for small business owners, many of whom will have spent years pouring their heart and soul into growing a company from scratch, there are solutions out there. A conversation with a qualified financial professional can help you find the right ones for your business.