By: Jay DesMarteau
Small business optimism is tentatively rising thanks to openings in many areas and reported slight increases in customer spending by the Bureau of Economic Analysis. While the spring’s headlines were dire, nearly half (47%) of small businesses remained open in some capacity, according to a recent Small Business Recovery Survey of 750 small businesses nationwide. Despite this, 58% of survey respondents reported that their revenue decreased. The reason? Nearly all small businesses faced the COVID-19 pandemic without a crisis plan and just 69% made changes to their business or operating model to adjust.
More than 5 million U.S. small businesses secured funding through the Small Business Administration’s Paycheck Protection Program to help keep employees on payroll and cover other essential costs. While this was a good lifeline for many, small business owners (SBOs) need to invest time in creating comprehensive plans in case of a second wave of pandemic-related closures so they can withstand potential revenue declines.
Businesses that are able to successfully pivot their operations can possibly preserve capital, generate revenue and successfully operate in a limited or virtual environment. SBOs should consider these four steps to prepare for a potential second wave of shutdowns or future crises.
- Create a crisis plan that includes potential financial impacts. As stated earlier, the Recovery Survey found that a majority of small businesses did not have a crisis or disaster plan in place prior to COVID-19. If they haven’t already done so, SBOs should work with their accountant, financial advisor or CFO to calculate the current financial impacts of COVID-19 and project business impact should there be another 30-, 60- or 90-day shutdown. In the same survey, SBOs acknowledged the need to prioritize building stable financing and cash reserves, enhancing their business model flexibility and improving budgeting and accounting methods to cut costs to better prepare for future crises. All of these priorities should be included in the development of a disaster plan.
- Accelerate the business’ revenue cycle. Access to cash is crucial in case of a future emergency or unforeseen circumstance but many SBOs struggle to stabilize cash flows. Businesses should consider how they can accelerate their cash collections where possible. SBOs can speed up the revenue cycle using methods such as automated receivables; mobile check deposit; positive pay for checks or ACH, which speeds up clearing time by matching payment information to known payers; or a ‘smart safe’ that electronically counts cash deposits and credits a business’ account prior to the physical cash reaching the bank.
- Cut expenses. Another logical way to preserve capital: Decrease spending. Start by evaluating inventory orders and eliminating costs for non-essentials. SBOs should work proactively with suppliers to negotiate payment extensions for accounts payable, which could spread the time between incoming and outgoing finances for the business and leave more days with cash on hand in the month.
- Determine how the business can pivot operations to enhance efficiencies. According to the Recovery Survey, half of small businesses implemented new capabilities to serve customers during the pandemic such as offering virtual appointments, online sales or delivery or pick-up services. Small businesses that haven’t thought about these issues should take time to consider how things could be done differently or better in a future crisis.
Additionally, SBOs should consider how to create efficiencies and build consumer confidence in their operations by offering electronic, contactless and cashless payment options. Most small businesses report accepting cash and checks as their primary method of collecting payments while just 28% use some type of point of sale (POS) system. Implementing POS devices and offerings not only provides sanitation benefits for customers and employees but provides faster transaction times.
The future for many U.S. small businesses is uncertain, but steps taken now could potentially lessen further setbacks from additional pandemic and economic disruptions. SBOs should use their banker as a primary resource for financing solutions to optimize business plans and operations. By working with trusted professionals like a bank, accountant or attorney, owners can gain insights that could help drive efficiencies and improve long-term outlook in case of a future crisis.
Jay DesMarteau is Head of Commercial Distribution at TD Bank.