A roadmap for small businesses to survive COVID-19

As COVID-19 impacts our businesses and personal lives, a lot of information has been distributed relating to how to protect ourselves and our employees from infection. Concurrently, the government has been formulating plans for keeping America’s economic engine from tumbling into the next great recession. Meanwhile, small businesses are being moth-balled. And, owners are trying to figure out how to keep their businesses from collapsing. 

Even under normal circumstances, small businesses are venerable to minor economic changes, but the recent nationwide shutdown is catastrophic. Small business cannot wait for national and state governments develop programs to help them survive, owners themselves need to act now. “Hope” is not an option. Quite simply, owners need to come up with a plan to survive the next 12 months. To do this, they should have a good understanding of their current financial operations, weigh their options, and make tough decisions that will help survive this economic Armageddon.

Here is a roadmap of tasks that will help small business owners navigate their way through the crisis:

Get an Understanding of Your Cash Flow

·        Expenses. Which of your expenses are fixed? Which are variable? Figure out what your core “burn rate” is. This will help you identify how long your business can survive on its current cash reserves.

·        Accounts receivable. Don’t count on your customers paying their vendors like they’ve always done. They are facing uncertainty, too. Call them. Negotiate early payment terms if need be. As they say, the squeaky wheel gets the grease.

·        Accounts payable. This is the opposite of accounts receivable: you want to hold off payments as long as possible.  Understanding which suppliers are in survivor mode (like you) and which suppliers can absorb extended terms.

Know Your Insurance Coverage

·        Many insurance policies have business interruption coverages. You might have coverage under the terms of your policies. Call your insurance agent to get an interpretation of your policy.

Reduce Employee Costs

·        Employee costs are usually the highest expense item of any small business. While every employer would love to pay their employees in full during crises, that’s not always possible. Business owners might need to enact some closures, work hour reductions, or furloughs. If you do so, encourage your employees to file for benefits immediately. The state of California is making it easier for employees whose incomes have been reduced due to COVID-19 by eliminating the one-week unpaid waiting period. https://www.edd.ca.gov/about_edd/coronavirus-2019.htm

Talk to Your Landlord

·        Second to employee costs, rent is usually a business owner’s next biggest expense. It’s possible that your landlord may be prepared to discuss reduced rents. They would much prefer to keep the property occupied rather than go through the troublesome eviction process during this period of crisis.

Talk to Your Lenders

·        If you have equipment loans or working capital lines, talk to your bank about suspending payments. It’s crucial that you talk to them before you default on a payment or think that you will be violating a loan covenant.

Get an SBA Disaster Recovery loan

·        The SBA is working directly with state governors to provide low-interest loans to small businesses and non-profits affected by COVID-19. The SBA’s Economic Injury Disaster Loan program can provide up to $2m in financing. For more information see https://www.sba.gov/funding-programs/disaster-assistance.

About Hardesty, LLC

Hardesty is an executive services and financial consulting firm providing best-in-class executive leadership and professional services to middle market companies through its nationwide network of offices. The firm provides executive search, interim executives, technical accounting consulting, and strategic consulting services. Hardesty’s team of seasoned partners and professional resources is available for rapid deployment to companies regardless of location. Hardesty has grown rapidly since its formation in 2011 and has been recognized as a “Fastest Growing Company” for several years. Hardesty is headquartered in Orange County, California with offices in major U.S. markets.