5 steps to keep your small business open during a crisis
Keeping your small business afloat in challenging times can be difficult, especially during the on-going COVID-19 crisis. Restrictions designed to slow the spread have directly affected nearly two thirds of all businesses in the United States. These 5 steps can help your business survive through the crisis.
1. Review the future impact on cash flow
How will the crisis impact the week-to-week cash that flows in and out of your business? Sketch out a number of cash flow scenarios to help identify risks and determine your funding needs. Run a few examples where sales drop (or stop) over a period of time. For these scenarios consider:
- costs you will no longer have
- extra cuts you can make
- the impact on gross profit and margin
- the revenue you need to break even
- the length of time it will take to recover
Each drop in sales will have a corresponding fall in variable costs (materials, cost of goods sold), but at some stage you may find it’s not economical to continue with certain products and services if the fixed costs are too high. In these cases, you may have to lower your overall cost base (move locations or close down less profitable product lines).
With each of the cash flow scenarios, outline the actions you may need to take to continue trading now and in the future.
2. Understand the status of your supply chain
Outline what’s happened to the key suppliers you rely on and identify risks to your business if they were suddenly no longer able to deliver. This is especially critical if you have exclusive or hard to replace materials or products as part of your own delivery to customers.
Develop an alternate supplier plan and consider reaching out to these businesses as back-up if your existing supplier can’t deliver.
3. Look inside your business to free up capital
Before you start to borrow and add to any existing debt, you may be able to free up cash within your business to tide you over. There could be machinery that you no longer need or vehicles you use on an infrequent basis, that could be sold and turned into cash. These could then be leased back when you need them.
Other ways to raise extra working capital include:
- Selling parts of the business
- Liquidating excess inventory or raw materials
- Re-investing your own capital
- Finding external investors
Look closely at the business assets on your balance sheet to see what you don’t need and convert as much as you can to cash, without handicapping your core business. The key to your small business accounting in a time of crisis is effective cash flow management.
4. List actions you’ve already taken
It’s useful to list what steps you’ve already taken to minimize any issues the current crisis has caused. This could include applying for government support, negotiating partial payments with suppliers, deferring costs to a later period (rent and interest are common examples), and amending your terms of business to collect money faster. Also include any temporary or permanent cuts you made to staff.
Ultimately, there will be key decisions to determine if your business can trade out of the current crisis.
5. Define your future plans
You may be able to pivot your business to find new revenue streams through finding different customers or markets, developing new products or services, or finding new ways to sell to your existing customers .
Outline what you aim to implement to bring your business back to profitability.
Think about how much additional risk and debt you feel comfortable taking on, as you will know the future potential of your business best. Do you cut your losses and exit, or continue to build on what you’ve created?
Regardless of what actions you have taken or will take, document the changes and reach out to your bank, accountant, and investors as early as you can to help find the right support for your business.