6 Things Small-Businesses Can Do to Weather the Next Pandemic or Economic Downturn
Recently I read an interesting article by a Bloomberg Opinion columnist named Arianne Cohen that was titled How Small-Business Owners Can Prepare for the Next Pandemic, that basically “major disruptions happen every few years. Get staff retention plans, flexible contracts, and a cash buffer in place now.” And the past 19 months starting when the pandemic hit in early 2020, has taught businesses and people a few things;
- That business income can dry up almost overnight
- And that another major crisis may be just around the corner
Small businesses and startups need to be prepared for the next big event, such as another pandemic, an economic downturn (recession), natural disaster, (tornado, wildfires, climate-related), or even a political upheaval such as what happened in the U.K. with Brexit. Mrs. Cohen spoke with Dan Crompton, a small-business coach with ActionCoach UK, and he gave some advice.
The Bloomberg article gives a few helpful strategies to help be better prepared for the next crisis:
1. Prioritize having cash reserves in the bank
When whole industries ground to a halt last year, survival depended on how long companies could survive on the money they had stashed away. “Cash is the true sign of the health of a business,” Crompton says.
He recommends having enough money to survive at least three months with no income, but six to 12 months would be better. This goal should be prioritized and tracked quarterly, he says, along with sales and profits. Cash flow is a snapshot of your business finances taken during a specific time period. It provides a picture of money flowing into and out of your business, letting you know how liquid and flexible your enterprise is while gauging its relative long-term health. monitor your cash flow very diligently, and forecast it monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Make sure your financial statements provide information that is timely, relevant and accurate. Cash flow statements are superior in this regard to income statements and balance
sheets. Be able to project where you will stand three months in advance.
2. Renegotiate or get out of long term fixed contracts
Jason Cherubini, the founder of Seraphim Associates International, a financial consulting firm for startups in Washington, D.C., told Bloomberg “companies should be looking to maximize flexibility so they can more quickly respond to changing conditions.” He ent on to say that business owners should review all financial and workforce agreements, and look into options that would increase flexibility, such as:
- Setting up lines of credit with banks
- Renegotiating payment terms with vendors
- Consider using flexible workspace rental terms (coworking office space)
- Rethinking fixed labor contracts
Mr. Cherubini, explains that some of these changes could increase costs, but the “protection it provides is worth the extra expense in the event of a disaster.”
3. Develop an employee staff retention plan
In a downturn, to often business owners follow their immediate instincts and “dramatically cut costs in an attempt to outrun any revenue shortfall,” says Phillip Kane, CEO of organizational advisory firm Grace Ocean. He went on to explain that “unfortunately, these moves leave them entirely unable to respond to the inevitable rebound.” He counsels clients to avoid gutting their payrolls and other costs because a bare-bones staff is unable to sufficiently serve customers, let alone help the business grow. Instead, companies should focus on winning more market share when business resumes.
Mckinsey & Company recently wrote an article, about the hybrid work models, and the executives who mishandle the transition to a hybrid-work model or fail to offer one are at risk of losing otherwise satisfied employees. Our latest employer and employee survey results unveiled that almost 90 percent of employees who took new jobs didn’t have to relocate because so many more companies are “location-agnostic.”
4. Invest in financial security or well-being programs for your employees
Maia Monell, co-founder of digital finance technology startup Navit Money told Bloomberg, “small-business owners need to prepare thorough financial well-being programs.” She went on to say ““if you don’t have a plan in place that helps take care of your employees and their financial anxiety, you’re not going to be able to perform well as a company.”
Meaning it’s much easier for employees to weather emergency pay cuts if you’ve set them up to be financially stable.
5. Start to expand online and begin your company’s digital transformation
In a disaster, a strong online presence can help a business develop new sources of income. Mark Verwoert, founder of digital marketing company Mark’d Agency told Bloomberg “focus on the online buying journey.” Even if consumers continue to frequent brick-and-mortar stores, 90% of all customers will research your product online.
The companies that will shape the future will be the ones that are the most digitally native.
6. Launch low-work, high-income products and services
Melis Steiner, co-founder of BrandPartners explained to Bloomberg that organizations should consider building an arsenal of high-revenue products and services that require the lightest lifts. “Times of crisis require the ability to stay light, lean, and agile,” she says.
Translation: This is not the time for your complex, labor-intensive pet projects. “When disasters hit, if sources of income are light on costs,” she says, “you’ll be operating as lean as possible.”
Running or managing a small business often leaves little time to keep track of national, and even regional, economic indicators that might affect your industry and your specific operation. Yet conditions such as interest rates, inflation, gross national product, stock prices, and consumer confidence can have a direct impact on your profitability and on relationships with vendors, customers, and even employees.
During periods of economic decline, whether widespread or cyclical for a particular type of business, entrepreneurs are most likely to bear the brunt. Yet the fact that conditions are changing opens up opportunities for resourceful firms to outsmart larger competitors who, during a downturn, carry on business as usual or are unable to adapt quickly — except to fire employees.
Such innovative smaller companies can:
- Gain market share by taking it away from competitors unable to adjust to shifting market conditions.
- Maintain a strong cash stream throughout the downturn, in contrast to other companies that may have liquidity problems.
- Become a leaner, more cost-effective, and more efficient operation, better positioned to do well when the market improves.
The challenge is to be aggressive and imaginative. Entrepreneurs who survive and even prosper during hard times must be able to look beyond the present, to overcome the constraints of tradition, to see the firm from a new perspective, and to do business differently. If you are a small business owner and you have any questions, don’t hesitate to reach out for a free consultation.