Entrepreneur Mark Cuban once said, “wherever there is change, and wherever there is uncertainty, there is opportunity.”
Never before has a pandemic caused an economic recession and, as times become more strange and uncertain, it is imperative that small business owners brace themselves for the inevitable storm. While nobody knows exactly what the coming months will bring, experts have predicted a radically different world with radically different norms when the coronavirus finally dissipates. The current adjustment period is increasingly seen as a transition to what is being dubbed as the shut-in economy, a new realm where businesses must transition to on-demand services in response to socially isolated consumers.
So what can you, a small business owner, do to prepare your business for these turbulent times? Here are five essential strategies to help you survive, or even thrive, regardless of your industry.
1. Pad your balance sheet with more cash
Your business will need cash to cushion it from further market shocks. Even if you’re not a cash-rich business, or are a small startup struggling to pay back pre-existing loans, you can still make the most out of your situation by conserving whatever cash you have and keeping operations lean. Things are going to constantly be in flux, so reassess your business model to look for new revenue streams while keeping old ones going for as long as possible.
We are just at the beginning of this economic downturn, so expect a bear market for the next one to three years. This means that it will become increasingly harder to secure loans as creditors become more selective in a buyer’s market. If you’re managing a startup, think from the perspective of a venture capitalist (VC) and understand that investors and lenders are also trying to stay afloat.
Default rates will rise as many businesses fail to survive, making lenders highly selective and plunging the market into a Coronavirus credit crunch. VCs will most likely double down on late-stage companies they have already sunk lots of cash into, which means that early-stage startups will get the short end of the stick, with only a few exceptions. It is thus crucial to understand your credit standing if you intend to apply for loans and grants.
2. Tap into funding resources provided by federal, state, and local governments, as well as corporations
It doesn’t take a genius to understand that asking millions of working-age adults to stop working will create an unemployment crisis. In order to patch up this problem, government authorities on federal, state, and local levels are all providing financial assistance to small businesses affected by the coronavirus.
Federal programs offered by the U.S. Small Business Administration (SBA) include:
Paycheck protection loans – Eligible for all businesses with fewer than 500 employees, this loan package will guarantee loans with terms of up to 10 years and interest rates of up to 4%. The limit for a single loan is $10 million and loans may be deferred for six months to a year.
Economic injury disaster loans – Small businesses and non-profit organizations are eligible for this package, which provides working capital loans of up to $2 million. Terms of repayment go up to 30 years, with an interest rate of 2.75% for small businesses and 3.75% for non-profits. Payments on this loan may be deferred for up to four years.
$10,000 emergency grant to economic injury disaster loan applicants – In the case that your loan application is denied, you may still apply for this grant from the U.S. SBA to cover your payroll, rent, and other operational costs.
State programs vary widely but usually include loan packages within the $50,000 to $200,000 range, along with grants under $10,000.
You can access more information about packages offered by individual states and corporations through Tillful’s COVID-19 Funding Relief Tracker.
3. Cut expenses
In order to slow your bleeding, you will have to lower your fixed costs. This translates to renegotiating your rent, your vendor contracts, and the salaries of higher-paid executives so that the workforce on the lower rungs can keep their jobs. Administrative functions that can be automated or outsourced should be as soon as possible to spare cash for essential functions that cannot be.
Manufacturing, logistics, and floor staff who provide labor stand at the core of any business, and are also usually the most vulnerable to the COVID-19 crisis. They should, therefore, be given priority and retained unless absolutely unfeasible. If it becomes necessary to furlough employees or have them reduce their hours, communicate your reasons empathically with them and make your terms absolutely clear.
Here is a list of cost-saving strategies you can use:
|Payroll||Delay start date
W2 reduction in force
|Sales & Marketing||Reduce marketing spend
Eliminate tradeshow and conferences
Delay supplier payment
Renegotiate lease and supplier agreements
4. Communicate, communicate, communicate
In the words of Nassim Nicholas Taleb, the COVID-19 crisis is a Black Swan event. Smooth internal and external communication is therefore essential to ensure fast response times to sudden developments that not only disrupt the status quo but change the rules of the game entirely. There is very little room for error and misinterpretation in volatile situations when stakes are high. Make sure your communication channels with your staff, customers, vendors, and investors are as clear cut as possible to prevent either from happening. Redesigning internal communications to a remote working model is also a good first step, as it minimizes the need for physical proximity.
5. Reinvent your business model (and perhaps your brand)
The key terms here are outsourcing, remote, and on-demand. The shut-in economy has arrived, and it is likely here to stay. Industries reliant on intensive manual labor and consumer spending, like travel, food, and beverage, will be the worst hit, and their downstream sub-sectors will either disappear or transform to an unrecognizable degree. Your business will need to evolve into a remote distribution model if you want to thrive during this pandemic.
If you’re a brick-and-mortar retailer or service provider, shifting sales and marketing functions online is now no longer an option but an immediate necessity. Food and beverage outlets will likely have to shift to on-demand catering, employ online Point-of-Sale systems, and work more closely with courier services like Uber Eats and DoorDash.
Outsourcing delivery to courier services will be cheaper than maintaining an in-house team, and with most functions being moved online anyway, it will be helpful to operate as lean as you possibly can.
The world isn’t going back to normal any time soon, and it will probably never go back to the way it was before the COVID-19. As we have covered, prudent management, loans, and grants will buy you time to adapt your business strategy to the post-COVID-19 economy. Remember to maintain constant internal and external communication to keep abreast of the evolving situation, as the pandemic will shift in the way we work, travel, and live in the coming years.
As stressful as this situation may become, it always helps to remember that you are not facing this crisis alone. Just as everyone will inevitably make changes to the way they carry out their personal and social lives, so too will businesses have to reinvent themselves.