Nice vaccine announcement… but what’s next for your business?

We saw this week some surprising news about a large COVID-19 vaccine trial, which is extremely encouraging, but we as business owners shouldn’t rely on this preliminary data to plan the next steps.

Unfortunately, businesses everywhere are thinking about the potential for successful vaccines to deliver the next normal or get back to the Pre-Covid Era, and that’s very unlikely. Truth is that it is unclear how long this will last or if there is going to be a new normal. Quarantines and lockdowns became a way of life now, and we have been forced to transform how we operate. It is very complex to formulate a concise response, but we are going to have to get used to waves of disruption and constant battle, and who doesn’t, will actually go away.

Companies sometimes need to reset and reimagine the organization. There is a real need to look around the corner and anticipate how trends are going to affect your business and then to prepare for those trends and build capabilities that will lean into them. Also, reimagination has to be every few months, every season and adapt based on the current circumstances. 

The United States faces a wave of small-business failures this fall and businesses that were waiting for the new round of financial assistance are going to be in trouble this winter. As the pandemic drags on, it is threatening even well-established businesses that were financially healthy before the crisis.

We all know that the stock market is doing great, but it is a fact that as small businesses are severely weakened, it accelerates corporate consolidation and the dominance of the biggest companies, the reason why tens of thousands of small businesses have already closed. Yes, there are some high-profile bankruptcies in different sectors, but most large corporations have been able to solidify their position during the pandemic: demanding concessions from landlords, borrowing at low-interest rates and leveraging their distribution systems. On the other hand, small businesses usually have less access to credit and rely more heavily on foot traffic.

There are rumors of possible lockdowns in different areas and therefore this winter will bring new challenges to many businesses that are losing momentum because of the colder weather and surge in coronavirus cases. As a result, many businesses face a tough choice: Do they try to hold on with no guarantee that sales will bounce back? Or do they just close permanently and stop bleeding?

As a professional business broker, it is very sad to detect permanent business closures scenarios instead of fighting for a better exit scenario. Most businesses have some value, and by closing, they are just walking away from that value. Also, when you close a business you most likely will not get full value for the business assets. It is important to know that there are buyers and/or investors who are willing to take the risk of buying an operation that is in a challenging position and then invest the capital required to turn it around. Also, some businesses have valuable inventory, equipment, clients and suppliers that other groups of buyers may be interested in.

It is very important to define a strategy to be able to survive and evolve if you chose to follow a better exit process, and cash flow management is an integral element in the short-term. Under normal business conditions, companies primarily focus on the profit and losses - growing the top line while managing the bottom line, and the rest is usually taken for granted. In the current abnormal business conditions, you need to shift the focus from the income statement to the balance sheet. It’s not about selling, it’s about increasing cashflow: reduce fixed costs, reduce variable costs, swap fixed costs for variable costs wherever you can, sell assets and then lease them back, swap to contract manufacturing, more to third-party warehousing, focus on customer payment performance, offer promotions to get rid of old inventory, renegotiate your supplier’s payment terms, etc.

However, if there is a risk scenario on your continued revenue streams, it is imperative to consider ways you could replace that revenue and maybe pivot to other products, services or markets. Every situation is different and it’s important to carefully consider the upstream and downstream impact of your actions. Nevertheless, every business should consider investing in their digital transformation if they want to make their company attractive for a potential buyer.

The reality is that if the operation has a roadmap to digital transformation, there are higher probabilities of finding willing buyers. My message is simple: do not give up when you can potentially get some real value for your businesses. Remember that besides the assets, location, inventory and profits, the buyer’s value perspective is very important if your business is prepared to be integrated into other strategic operations.