Small business owners have taken an emotional beating in 2020. Navigating the complexity of COVID-19, rioting in many cities leaving storefronts damaged, and now facing reopening in an extremely uncertain environment.
The impact from COVID-19 has been significant on all fronts for the majority of small businesses in this country. The impact likely won’t be short lived and will result in some business owners forced to evaluate the viability of their businesses.
Today, states are relaxing restrictions and businesses are getting back to “normal”, maybe a “new normal”. Demands for your time and attention are increasing again. Before you lose yourself to the daily grind, spend some time to take stock of your business and plan for the future, whatever that may look like.
Step 1: Understand your Financial Health
Now is the time to ask yourself hard questions about how you operate your business, specifically how do you know if you are doing well or not? Accurate and consistent books lead to accurate and timely financial statements. Your financial statements will tell you a story about the health of your business and where you are headed.
When was the last time you reviewed your financial statements (or prepared them if you do the books yourself)? How often do you receive them (or prepare them)? Do you feel confident that you understand the story they are telling you?
To effectively plan for your future, you need to understand where you are. What impact has COVID-19 had on your business? What was happening with your business prior to COVID-19? Were you experiencing positive or negative results? What were the trends?
This is where Ceterus can help. Automated accounting for your small business or accounting firm is our specialty. Contact us for more information.
Step 2: Consider Government Assistance
COVID-19 has led to a variety of newly established government assistance programs. There are resources being provided at all levels of government. Are you aware of all the options that exist to help you survive this crisis?
The most notable federal programs include the Payment Protection Program (PPP), Emergency Injury Disaster Loan and Advance (EIDL), Employee Retention Credit (ERC), and the Main Street Lending Program. Additionally, it seems as if there are new bills being introduced by legislators regularly to further help small businesses navigate these very difficult financial times. The programs are aimed at expanding programs like PPP and ERC, not to mention a program that would likely exceed the reach of the CARES Act entirely.
If you are not aware of these programs, you should become familiar with them quickly. Some of them have an end date that is approaching quickly. For example, PPP applications will not be accepted after June 30.
Many states and localities are also offering assistance for those in need. Knowing what your options are is vital in the current economic environment you are operating in.
Step 3: Cash Is King
Some make the argument this phrase is always true. In times of distress and uncertainty cash is absolutely essential for survival. Extending your runway (keeping your doors open) is incredibly important when you cannot accurately predict how your business will operate for an extended period of time. In the current environment, it seems most businesses will struggle to find their way back to “normal” over the next six to twelve months, if at all.
The more cash you have on hand the longer you can sustain a downturn. The more cash you have on hand the more options you have. Perhaps you need to pivot or change your business model altogether. Fitness businesses are a great example of this right now. Many have pivoted to doing more online classes and reduced in-person class sizes. This is a major shift in their business model, which will ultimately require adjustments on spending as well. It will likely take some time to navigate such a dramatic shift in operations.
Step 4: Create a Budget
Approximately 60% of small businesses operate without a formal budget. Budgets are essential for businesses to quickly and easily identify where they are doing well and where they are not. Without them, business owners are essentially operating based on a “gut feel”. That may be ok for short periods, but not over extended periods of time.
I don’t know many business owners that have any sense for how their business is going to operate in this new environment. Budgeting couldn’t be more important in situations like this. You must know how much cash is coming in and equally as important where that cash is going. You need to develop expectations for your business and keep close tabs on operations. It is likely you will have to update budgets regularly for some period of time as you find your “new normal”.
Step 5: Be Realistic
We are living through unprecedented times. Times that can be overwhelming for small business owners trying to keep their business and their dream alive, not to mention keep their teams employed. It may be time to reach out to your trusted advisor or find someone you can count on to help you navigate through these constantly changing times.