When you’re the boss, it’s only a matter of time before you’ll need to safeguard your business during challenging times. Challenges come in many forms and your response to some, like a global outbreak of a novel coronavirus, requires a combination of measures, some unique to the circumstances and others, necessary for almost any kind of major disruption.
For example, the federal government’s response to the Covid-19 pandemic included financial support for small businesses that, if obtained, could be worthwhile to take advantage of. But there are additional steps you can take.
Safeguard your business during unprecedented times
Before diving into a defensive posture, think about ways to turn a lemon into lemonade. Recall the expression, “the best defense is a good offense.” Safeguarding your business during this time could involve introducing a new product or service, or even seeking to expand your market share with what you already offer your customers today.
It is possible that some of your competitors are hunkering down or losing productive capacity, leaving you with a gap to fill. Or maybe you could enter a new partnership with a business that’s complementary to yours, for a one-plus-one equals three effect. For example, perhaps a restaurant and a grocer could team up to create a competitively priced meal delivery service.
Assess new product or service ideas you considered in the past but could not pursue because you didn’t want to rock the boat in calm waters. Today, chances are, your boat is being rocked by external forces, so now may be a good time to try something innovative.
Even if you hadn’t considered entering a different type of industry, there could be a surge in demand for other products and services. An example is the increase in demand for mental health services, as major corporations like Starbucks have committed to making these resource available to employees without charge.
But even with new opportunities in sight, it’s important not forget about safeguarding your original business. Staying afloat often requires an immediate response.
Manage your cash flow
Begin with managing your cash flow aggressively. There are numerous strategies that can avoid exhausting your operating funds, particularly if you haven’t had to focus on this in the recent past. Start your analysis with a cash flow forecast: estimating the amount of dollars coming in and leaving your bank account on a monthly basis.
If your sales are dropping, refresh your revenue forecasts to keep your budgets up to date. If you’re uncertain about your budgeted expenses, review your profit and loss (P&L) statements to track what you’re spending, what’s coming in, and when the balance is lowest each month.
Further, if your P&Ls seem a little sketchy, consider upgrading your accounting software, particularly to cloud-based systems that can be securely accessed remotely for added flexibility.
What happens when your cash flow forecast indicates solvency challenges are on the horizon? Start with the easier steps:
- Ramp up collection efforts for overdue receivables
- Pay your own bills when due, and not any earlier
- Negotiate more generous payment schedules from vendors
- Look for discount opportunities for early payment–you could come out ahead by doing so if you are able to swing it
- Postpone discretionary purchases
Add to the list: Take advantage of borrowing opportunities, such as inventory and receivables financing, if you only need to buy some time to smooth things out. For example, compare the interest cost of borrowing to any penalties you might incur for paying your suppliers late. Also, consider the risk of being cut off by suppliers if they lose faith in your ability to pay your bills.
Should you borrow?
Borrowing, or at least borrowing economically, might not be an option, if you are already facing problems. (That might be a lesson to keep in mind for a future challenge.)
Also, think about ways to trim expenses without taking a scorched earth approach. For example, are you paying for any outsourced services, such as custodial work, that could be handled in-house for less? Or the opposite: Are there some tasks that can be outsourced for less than it’s costing you to accomplish in-house?
The more challenging your financial situation, the more difficult expense-cutting decisions you’ll need to face. Possible examples include cutting back your hours of operation, eliminating elements of employee compensation including 401(k) matching contributions and even health benefits, if you’re not legally obligated to provide them under the Affordable Care Act.
One of the most challenging expense-cutting decisions is whether to lay off staff. If that time comes, for the sake of the morale of employees who remain, make it evident that layoff decisions are not taken lightly.
If the employees that need to be laid off are valuable to you, you may be able to re-hire them when things pick up again. So being as compassionate as possible will increase your chances of bringing them back down the road.
Additionally, during circumstances like an epidemic, taking good care of employees includes doing everything possible to safeguard their health.
Along similar lines, customers also need to have confidence they won’t become sick by doing business with you. But even when your customers appear to be AWOL, don’t let them become strangers. Staying in touch with them during their absence could be crucial to their loyalty when the crisis passes.
Maintain contact with customers
Staying in touch can take various forms, including sending them useful information about trends involving your product or service, and about how you have adapted your business so you’re be ready to serve customers when they’re ready to return.
Finally, when you’re not putting out fires, think about the future. Will this cause permanent changes in the way business is done in your industry? Will it change the demand for your product or service, or the way it is delivered?
What about the way you do business? For example, if you are discovering that many of your employees can be productive while working from home, and don’t miss a long commute, should you change your regular work-from-home policies? The current crisis occurred amid ongoing workforce trends that have already caused many employers to rethink how they need to manage their people.
Sometimes challenging times accelerate trends that might have escaped your notice previously, trends that you can adopt to improve your business. Now, that’s taking a lemon and turning it into lemonade.
Written by Richard Stolz for Sage Advice