By: Michael Safren, Esq.
The COVID-19 outbreak and the Government’s response has wreaked financial havoc around the globe and our state, leaving many small-business owners struggling in its wake. Now that the Governor has outlined a four-phase plan for reopening, it is important to consider what recovery mode will look like once the economy begins to reopen. This guide can provide you with practical guidance to get your business back on track.
1. Assess the Financial Damage
The first step in developing a rebuilding plan for COVID-19 is determining just how deeply your business has been affected. Start with the measurables. Update updated your financial statements including your profit and loss, cash flow statement, and balance sheet and compare them to last year’s numbers to see how much your business may be down. It is possible that the damage might not be as bad as you think.
Aside from the measurables, consider other ways in which your business has been affected. For example, if you have had to lay off or reduce hours for some or all of your employees, you will need to factor staffing into your rebuilding plan in terms of both the business’s capacity and the business’s ability to service clients . If you have decreased your advertising and marketing budget down, analyze the expected decreases both in costs and in revenues. analyze whether it is cost effective to return to your previous investments in marketing and advertising. You will also need to account for any customers that may have migrated toward competitors.
2. Review and Re-Evaluate Your Business Plan
COVID-19 has not only caused businesses to suffer disruption, but may cause customer preferences and the business climate to change. As a business owner you should review and re-evaluate consider how your business can pivot to adjust to a new normal.
For example, if you previously relied on foot traffic for sales, you may need to engage in a digital expansion to accommodate the higher numbers of people who are shopping from home. If the business reduced staffing levels, consider whether the business has or will have the projected revenues to support bringing back any reduced staff. Further, consider the volume and the level of service that the business can provide if the staffing levels remain reduced. It may be possible to maintain reduced staff levels, by using technology and software to handle bookkeeping, accounting, customer relationship management, and client outreach.
Analyzing how your overall industry has been affected by the coronavirus pandemic also is important. Analyze your competitors and the industry as a whole with specific attention to the trends and focus on finding the opportunities. It may be possible to identify opportunities, customers, or a service area that has been neglected up until now could be critical to reclaiming and expanding your customer base going forward.
In reviewing your business plan and business model, honestly identify your business’s strengths and weaknesses. Then, look at what was working before that may not work as well now and see where you can adjust or improve to remain competitive. It is critical to revisit your business goals to make sure they are realistic, given the current circumstances. For example, revenue targets or goals may need to be scaled back in light of reductions in overall demand.
3. Examine Financing and Funding Options
You may need some working capital to jump-start your business operations as the economy re-opens.
There are several financing options to for you to consider. The SBA is an obvious choice for business loans, and there are a few programs that can help. The Paycheck Protection Program, for example, is designed to provide funding to small businesses that are struggling to retain their employees during the coronavirus pandemic. Economic Injury Disaster Loans also can help with short-term financing if you need money for things other than employee retention.
However, the funding is limited and has in many cases, been prioritized by the financial institutions to preferred larger customers. Unfortunately, it is entirely possible that funding may be depleted before your application for a loan is ever reviewed. For this reason, you should consider other sources of small business funding, including:
Each option can have pros and cons. For example, accounts receivable financing and merchant cash advance financing, generally do not require high credit scores to qualify, however the interest rate may be considerable higher than other forms of financing and if your business has not receivables or inventory to leverage, these may be unavailable.
4. Adjust Your Budget to Account for New Spending
You may have to spend money before you can make money. For example, you may need to spend money on hiring and training new employees or rehiring ones you had to lay off, new inventory may need to be purchased, and advertising and marketing campaigns may need additional investments to generate new business.
As an owner, you may consider reducing payroll for both your staff and for yourself. You will need to calculate whether a payroll reduction will be feasible for both your staff and for yourself, but skipping out on paychecks in the near term could help your business to get back on its feet faster.
5. Develop Rebuilding Timeline Based on Priorities
With multiple tasks on hand, it may not be possible to take all the necessary actions at one time. Instead having a timeline to follow that prioritizes your most important actions first. For example, your immediate goal may be securing funding for your business or restarting baseline operations. Once you’ve done that, you can set a timeline for rehiring employees, then restocking inventory and, finally, reaching full operating capacity.
6. Create a Contingency Plan for the Next Crisis
Although the COVID-19 pandemic may appear to be a once-in-a-lifetime event, the reality is that any number of emergencies can come along to disrupt your small business at any time. Applying the lessons learned during the current pandemic to prepare for the next crisis can help you insulate your business from future shocks.
Perhaps the most important lesson is to be able to adapt and keep your business fluid so you can reasonably weather storms.
Michael Safren is a Partner at The Law Offices of Jenny Ling, PLLC. His practice focuses on business, real estate, and civil litigation.