The economic fallout spurred by COVID-19 is unprecedented, and small businesses have been hit particularly hard. From restaurants to construction companies, the vast majority of small businesses require human contact of some sort, says Rob Einstein, a regional sales manager at U.S. Bank. Social distancing measures make it difficult for many business owners to operate their stores, offices and warehouses normally.
Though there are still many economic uncertainties that lie ahead, there are steps business owners can take to alleviate some of the hardship and worry. Learn more about how you can strategically prepare your small business for the future — no matter what that future holds.
If you haven’t already, Einstein recommends conducting a detailed analysis of your finances. “Knowing exactly how each dollar is earned and where it’s spent is always a good idea, but it’s more important in hard times,” he says. “Right now, it’s more important than ever.”
This includes doing a deep dive into all your revenue sources. Once you understand how money is coming in, you can make a plan that will help you stay afloat if one or multiple sources of income decrease or dry up. It’s also important to have a comprehensive understanding of your expense structure, like which of your costs are fixed, and which may vary.
Once you have a solid grasp on your financials, Einstein recommends going on the offense by conducting a stress test. A stress test is a test that helps you predict what your finances will look like when your business’s income or costs change. For example, if you typically do a certain amount in sales, measure how your business will be impacted if that figure drops by 10 percent, 20 percent, and even 50 percent. How does the reduction impact your cash flow? And are there steps you can take to continue to operate even if revenue declines significantly?
Given how quickly the economy has been shifting, Einstein advises that business owners plan for a number of different scenarios, so you have a clear understanding of how long your company could survive in different situations. Having multiple contingency plans outlined in advance lets you react quickly if the economy turns and potentially save your business. In the case of COVID-19, you could consider how you can continue to serve your clients or customers digitally or with minimal person-to-person contact. Many businesses that rely on in-person interactions have found that some of their services can be conducted remotely.
If you need help making a plan for the future, your banker can help you navigate relief options or advise you on a financial path that works best for your business. If you don’t have a banker you work with consistently, Einstein recommends reaching out to a branch manager at the bank where you do either your personal or small business banking.