These are difficult times for a small business, for all businesses. Usual ways of gaining and conducting business have been upended. What have we learned, so far, from this experience to apply in our business going forward?
Following is a checklist of items based on my working with many small businesses during this crisis.
Have a good business foundation in place
These are not the front-line items of making a product, performing a service, contracting a new customer, attending a trade show—activities that can generate revenue. Thus, the items listed below are often considered lower in importance, a nice-to-have rather than a must have, or just overhead and are consequently pushed off to a later date. The current COVID-19 crisis demonstrates that these are important to have in place and those businesses without them have additional hurdles and challenges.
1. Know your supply chain/vendors/contractors/customers
You can control the items within your company but are often impacted by other’s actions.
- Will your customers pay their bills on time?
- Is your business dependent upon a few customers (i.e., customer concentration)?
- Will you receive supplies, parts, and other inputs needed to make your business function?
- Are you dependent on the performance of just a few suppliers?
- How readily available are service providers if they are sick and unable to perform?
Some of these questions did not have to wait for COVID 19 to be impactful, as those with supplies from China were impacted for much of the last year as a result of the trade war.
2. Have a banking relationship and know your banker
The COVID-19 economic stimulus packages are being implemented via the banking system, and banks, which are overloaded with applications, are giving first preference to their current customers. Those companies having a good working relationship with their small business loan officer and appear to have more communications about the process requirements and status of their applications. If your bank is not treating you as you think appropriate, then when times improve, look for another banking relationship.
3. Have in place a Line of Credit (LOC)
In these times “cash is king.” It is a best practice to have a LOC that can be drawn if needed. It is your safety net to get through these times or to take advantage of opportunities to provide your product/service to your customers or to grow your business. The best time to get a LOC is when you do not need it. Whatever level of LOC you might have today, look to increase it. Often, there is no cost of a LOC until you use it.
4. Have in place a cash flow forecasting process
Again, in these times, cash is king. Forecast your cash flow—monies expected to be received and monies you will be spending. Know if you can make payroll, pay yourself and pay some toward your key vendor invoices. This financial modeling can be a simple Excel spreadsheet or something more sophisticated. Depending upon your sales and payment cycles, this could be a monthly forecast for the next 6 months or a weekly forecast for the next 3 months. You need to know your cash in the bank and net working capital position every day.
5. Have relationships with an accounting and law firm
Most small businesses have these relationships, but are they active? You need to rely on your accountant and lawyer to help you interpret the regulations for obtaining disaster loans as well as actions you might need to take like suspending rent payments, not paying vendor invoices, leaning on customers who are not paying your invoices, etc.
Understand that the future is uncertain
Fully appreciate that there are many things you do not know and that are impossible to know for sure. Reach out to advisors and others who might have operated in similar situations and get their advice. One source of such advice is having a SCORE mentor—go to www.MidShore.SCORE.org to find a mentor and to find much information about starting and operating a small business.
- Don’t believe that everything will be OK without taking action. This is a high risk “bet the ranch” approach. While you do not need to make rash decisions, you should be taking actions to help ensure that your business can survive the crisis and be strong when the crisis is over. At that time, it will not necessarily be business as usual.
- For many companies, personnel cost is the largest area of expense and the most within your control to impact. These are very difficult decisions. Have in mind various scenarios of what you would do in a crisis. Most experienced entrepreneurs make well-thought-out, but quick and deep personnel cut decisions. Their approach is to make deep cuts immediately and thus hopefully making the cuts just once.
- Decide what is important to your business. Is it keeping the full team together and thus all take a temporary pay cut, or are some positions not truly needed so some staff is let go and those retained do not have as much of a compensation cut?
- Know what is important to your team. In a few companies I am working with, the founder/CEO has talked with each employee one-on-one and found out that maintaining health benefits is more important for the next 2-3 months than maintaining salary. Thus, salaries were cut 40%, but health benefits retained.
- Communication with your team is critical during these times—both one-on-one and in groups to get their inputs and share plans. Some companies are holding bi-weekly “town meetings” via video conferencing; which augment weekly operationally focused discussions.
- Don’t believe that once this COVID 19 crisis is over, there will never be another crisis. And thus, do not need to consider the actions noted in this blog. In the past 30+ years, there have been several crises with major financial market impact (Savings & Loan Crisis, Dot Com Bubble, Great Recession, and now COVID 19) and each new one seems to be more intense and more impactful.
Focus on having sufficient cash
I am sure you started the year with plans for growing your business, undertaking new projects, offering new products or services, having a key management or customer conference, hiring key positions, or maybe even retiring from your business, etc. Now, most of these are on hold. In a crisis, it is all about getting through it. Now is time to change your focus, change the metrics you follow—concentrate on having sufficient cash to weather the storm.
Be a leader
Leadership is about having a plan and taking action—having thought about the issues and have a coherent strategy, reaching out to others for advice.
Leadership is also about how you act—being steady in a crisis. It is not being Chicken Little and telling everyone the sky is falling. Nor is it being a Pollyanna saying that everything will be OK and no action is required. Your team and your customers are looking to you.
Communications is key—both one-on-ones and in groups. These communications are an opportunity to really listen to your team and customers and for you to share in a transparent manner your plans, actions and, of course, the results. This current crisis with its mandated social distancing and working from home adds complexities to effective communications. As the company leader, this is your job to work through the communication challenges both with your team and with your customers.
As we do not know how long the COVID 19 crisis will last or what the business/economic conditions will be post-crisis, it is not too late to act now to improve your company’s position and financial health. Learn from this experience to make changes in your business operations. Be the leader your employees and customers are looking for.
Hal Shelton is a SCORE mentor, active investor in early-stage technology companies and Amazon bestselling author of The Secrets to Writing a Successful Business Plan. He is passionate about helping small businesses start and grow. Previously, Hal has been a CFO and board member for NYSE/NASDAQ publicly traded companies and nonprofits.