Written by MARK RILEY
Even in the strongest of economic environments, running a business is challenging. The effects of the coronavirus pandemic — both personal and economic — have made companies of all sizes rethink their short- and long-term plans. Some business owners in Fresno and Visalia, particularly those in the agriculture sector, have fared relatively well, while those in our hospitality and tourism industries continue to face unique challenges related to COVID-19.
Many businesses don’t know if they’ll be open, closed or just operating differently in either the short or long term. Many are struggling with cash flow, tightened access to credit, rattled customers and suppliers, and the overall survival of their organizations.
Following guidelines for the safety of your employees and customers should be the first priority for businesses. Next, taking a close look at your own operations and carefully reviewing internal processes and key relationships may prompt you to make changes that could make your business more efficient, flexible and resilient. As you respond to the impacts of COVID-19, here are some challenges and key steps to keep in mind:
Reassess your cash flow
During both good and bad times, lack of cash flow is often cited as a top reason small businesses fail. Even companies with steady sales can still falter without sufficient liquidity to meet payroll, pay suppliers and keep the lights on.
To safeguard against temporary shortfalls:
- — Ask your banker about overdraft protection
- — Speak frequently with customers and suppliers to stay aware of any potential changes in their businesses that could ultimately affect yours
- —Review how reliably your customers pay what they owe and create a watch list of those who consistently fall behind. A little probing may help you address issues proactively.
Assess your credit situation
Credit can be a lifesaver during challenging financial times. During the recessions of 1990-91 and 2001, the growth rate for commercial banking loans to businesses dropped to zero, according to the Federal Reserve Bank of St. Louis.
In a difficult economy, lenders may be especially cautious about companies they don’t know well. In fact, most lenders want to know how a business has performed over an entire business cycle. For example, during prosperous times, has your business made capital expenditures to grow? During less prosperous times, have you responded well to downturns? Knowing that your business has weathered challenges and responded effectively may give a lender the confidence to extend credit.
Give your company ‘survival training’
As we’ve seen recently, unexpected adverse events can devastate businesses. By 2018, business cybersecurity breaches had increased by 67 percent in five years, and during the first seven months of 2019, the U.S. experienced six climate and weather catastrophes with losses of more than $1 billion each. One in four small businesses fail to reopen after a natural disaster.
Creating worst-case scenario plans can help prepare your company to withstand adverse events and might even mean the difference between rebuilding and going out of business. Consider putting plans into place that protect your business against threats such as remote device theft or loss, security breach or malware.
Keep tabs on expenses
During the Great Recession of 2008-2009, nearly 75 percent of company leaders identified cost cutting as a top priority. However, trimming expenses across the board without carefully prioritizing needs during a crisis can backfire. Instead, consider taking stock of your processes during times when things are operating smoothly, from front-line to back-office functions, to determine what kind of savings might be possible when needed.
Work through “what if” scenarios ahead of potential downturns to determine the least painful and most effective reductions that won’t create new problems for the business. Consider renegotiating agreements with suppliers or adjusting payment terms to align with revenue cycles.
In addition, automate where possible. An estimated 45 percent of jobs now performed by people in the U.S., at an annual cost of $2 trillion, could be automated with existing technologies. Administrative tasks like payroll and other record-keeping can often be digitized at minimal cost. Automation can be an opportunity to re-train or re-focus employees on more value-added areas of your business, without having to reduce headcount.
Ongoing business success today demands resilience amid disruptions.. The more you do to plan essential aspects of your company’s financial future, the more control you’ll have over your and your business’ future success.
Mark Riley is the Fresno/Visalia Market President for Bank of America.