Welcome to week 11 of self-isolation. Yep, we’ve been doing this for over 2 months now and with that comes learning new skills!
The Coronavirus (Covid-19) has forced the world into lockdown and to the brink of a recession. It has already severely impacted small businesses and service providers.
As a business owner, you have no control over the economy and might feel powerless and hopeless.
Keeping your businesses afloat during the current economic condition is difficult, but not impossible. It helps to have realistic goals and plan to be in survival mode for perhaps the next 2 or more years (not just the next few months). Reduce expenses more than you think you need to because it will be worse if this lasts longer than you would like.
Being proactive and taking the crucial steps early on to ensure you’re prepared for what comes next will can make the difference between whether your business will survive or how well you make it through all of this.
Maintain your cash reserves: Cash is king!
The longer your business is able to last without any significant revenue keeping it afloat, the more likely you’ll be able to weather any further economic slowdown. A key factor to any business’ longevity is how much available cash you have on hand.
Try to reduce your expenses to the absolute essentials; what is needed to keep your doors open. Anything else is optional.
Prepare for a deep recession
Don’t count on a recovery until mid-2021, and even then, it may be a slow recovery. Assume it’s going to get worse because just like you, your customers are also cutting their expenses and their spending.
Reduce your monthly rent
Negotiate a lower monthly rent with your landlord. Find out if you can sign a longer-term lease in exchange for the lower rent. Your landlord is also running a business, and would rather have you remain at a lower rent, than have the space be vacant for months (or years). Point out that it’s in both your interests if they lower your rent and you get to a win-win outcome.
Request a discount on utilities
Take a look at all your utilities, water, power, Internet, and phones. Call your vendors’ competitors to see what kind of deal they can offer a business looking to save money on their utilities. Let them know you’re willing to switch vendors if they can offer you a big discount (even if it’s just for the first year).
Cut wasteful discretionary spending
Ask yourself, if each activity is necessary right now. If not, don’t do it. Also, consider cutting personal spending such as newspaper and magazine subscriptions that were a nice perk, but now nibbles away at your bottom line. You may consider keeping productivity-boosting expenses like the coffee machine or a well-stocked fridge that are relatively small expenses where the benefits in employee productivity far outweigh the costs.
Pay payables later
Call your vendors and negotiate better terms. For example, you may be able to negotiate 45-day terms instead of 30-day terms. Having cash on hand for an extra 15 days could be crucial to your survival. After reducing your expenses and cash outflows, the next step is to increase and speed up the inflow of cash as much as possible. Like many other businesses at this time, you may be facing plunging revenues. Here are tips for turning that trend around:
• Collect receivables sooner – Consider offering your customers a discount for paying sooner.
• Keep your existing customers – Don’t cut your business expenses so much that you can no longer service your customers. Now is the time to remind your customers why they chose you in the first place; if it’s because you’re the most cost-effective, remind them that your low prices are even more important during the recession.
• Double-down on your best customers – During this crisis most businesses are seeing new business dry up. This slowdown in new business is bad enough, but the loss of your best customers (your biggest accounts) could be catastrophic. Stay in touch with your best customers; call, email, or send them a card. Let them know you appreciate their loyalty and continued patronage. Ask them to contact you if they have any concerns and are looking to jump ship and ensure you let them know you’re willing to work with them to keep their business.
Position your business for the recession
A recession is very much different than when the economy is thriving. Consumers spend differently, and this forces you to adjust accordingly. Here are some tips for making those adjustments.
• Lower your inventory costs – You may be able to reduce the amount of inventory you’re holding so that you can free up much-needed cash.
• Revise your product line or marketing campaigns – Because consumers spend differently in a recession, they want (need?) to get more value out of their purchases. Positioning your business as providing great value, will help you outlive the recession.
• Consider reducing hours before reducing salaries – If you cut someone’s salary by 10% but ask them to continue to work the same number of hours, they will resent their lower hourly wage and will, subconsciously or otherwise, reduce their productivity. A better idea is to cut hours; you’ll save the same amount of cash, but have a better chance of retaining the same level of productivity from your employees.
• Consider cutting your own salary – You must cut (or even eliminate) your own salary before you think of cutting your employees’ salaries. If they have the perception you’re not sacrificing more than they are, it won’t matter that you’ve saved 20% in employee salaries — you may very likely see a 50% reduction in productivity. This means that you’ll actually be paying more for those employees because of their reduced output.
• Get everyone on the same page – Be open and honest with your employees. It’s better to cultivate an attitude of “we’re in this together and we’re going to weather this downturn together.” Share financial information with them, go ahead and show them the books (or at least an overview) so they can be aware of the decreasing (negative) cash flow. Don’t be afraid to say “we all need to be more efficient and more productive, or else none of us will have a job in 6 months.” Including them in the problem-solving process will go a long way to motivate them to give that extra effort during these very tough times.