April 13, 2020

Managing Your Small Business’s Finances Through COVID-19

Author: LaChelle Christopher, CPA

We’re all currently living in a very interesting economic time. Approximately one month ago, depending on your business, we all started to feel the financial effects of COVID-19. For most businesses, this was a slowdown or abrupt stop in sales. For a select few, it also meant a record level of activity (think hand sanitizer, toiler paper, chicken, eggs). In either case, things have not been "normal" for anyone - and thousands of small business owners could be facing make-or-break decisions right now.

Just as with everyday life, people react differently to stressors. Some small businesses may have had to furlough or lay people off, reduce hours, apply for financial assistance, or shut their doors; while others might be keeping status quo while subsequently diving into debt. Whether you have been established for decades or just recently opened for business, any of these options may be the right move for you, but you won't know definitively until you take the time to pause, think, calculate, forecast, and implement your plan for the coming months and quarters ahead.

Three Ways to Impact Bottom Line: Cost, Revenue and Margins

Traditionally, there are three ways to positively impact your company’s bottom line; cut costs, increase revenue, and/or improve margins. This post will run through strategies for each below. Given the heightened circumstances, we will also address two additional avenues - financial aid packages and the importance of effective communication.

CUT COSTS

Subscriptions, credit cards, tracking expenses

It sounds simple right? If I were to ask you right now how many subscription-based companies automatically charge you each month, would you have an answer? Most likely not. It can be impossible to remember every dollar that goes out of your business each day (think email platforms, advertising platforms, website subscription, and all other reoccurring memberships). If you feel out of control when it comes to spending, the best way get on top fast and "stop the hemorrhaging" is to physically cut up your current business credit cards and have your credit card company reissue a new card in the mail.

While it is drastic, this method will stop all automatic charges from hitting your account and you will now regain the control to accept each expense as it comes in. You will effectively be making yes/ no decisions on what expenses are essential to continue operation. While you’re on the phone with your credit card company, you might as well try to renegotiate terms. If possible, I would suggest a lower interest rate for a select number of months - it never hurts to ask!

Another way to cut costs is to start your day by tracking every expense that hits your bank account (or credit card) in an Excel document. Although this method is more tedious, you will see right away if you are getting billed for a membership or service that you no longer need, opening the door for you to ask for a refund in a timely manner. If you are wondering where else to cut costs the best answer is to cut anything non-essential, that will not directly impact your business's ability to generate revenue.

RAMP UP REVENUE

DONATIONS, LEAN IN TO MISSION, BRAINSTORM

If you are one of the businesses mentioned above that is either thriving, or relatively unaffected financially in this economy, explore charitable options. There are many frontline healthcare workers, families, and others in need during this time and it is important that the small business community steps up to quickly support where possible. A local option, supporting many vendors close to our hearts, is an MN Hero Snack Pack.

If your revenues have taken a hit and you are not in a position to donate profits at this time, doing business as usual will likely not increase your cash flows. Your business will likely need to create new revenue streams or pivot your current offerings to generate revenue in the current economy. As always, you’ll want to retain your core-competencies, lean-in to your differentiators, and continue fulfilling your company’s mission, but you may need to alter how you execute in order to increase revenue and reserves. For us, this meant quickly creating and launching a new gifting suite at lower price points for our customers in our online shop. Our stay home gifting options are now live here - please note during checkout if your gift recipient is a front lines hero and we will throw in an extra gift. Not only will this help us turn inventory on hand, but also adapt to consumer needs of spending less while continuing to send positive, thoughtful and encouraging gifts to their loved ones. We plan to touch even more people as a result of this pivot.

If you are unsure of ways to increase revenue or generate new revenue streams, have a brainstorming session with your entire team. Start by writing down your company’s business cycle, identifying touch-points where you hadn’t previously advertised, different versions of product or services that you haven’t sold before, and/or new markets that you may not currently be in. You can also get creative by thinking of ways to add additional value to existing customers. Spend extra time focusing on the needs of your top 20% of customers. Creativity is important during these brainstorms – no ideas are bad ideas. Once the list of ideas appears, comb through and think about feasibility with your margins in mind.

OVER-COMMUNICATE

Internal & External

To make it through COVID-19 you need to have strong internal and external communication. Internally, your employees may be nervous or uncertain about how the company plans to navigate through these murky waters. Even if your plan isn’t completely solidified or the most ideal, people tend to feel relief just knowing a plan is in place. As a leader, it’s essential your communication be honest, clear, and empathetic (a point we learned from the beloved Brene Brown).

So though your Q2 sales goals might be turning into breakevens, and your profit margins may be taking a small dip to continue generating business, it’s important to communicate these plans and numbers to the appropriate teams so that each employee has something to individually strive for. Give purpose to your employees by keeping them up-to-date on the plan for the week, month, quarter, and rest of 2020. Now is not the time to be vague on how your business is performing, but instead to communicate the cost of doing business so that everyone is clear on why their individual contributions and responsibilities matter.

If your company is pivoting messaging or expanding offerings – great! Though recognize that your employees’ roles may have expanded or shifted as well. Make sure everyone is receiving clear communication on their adapted roles as the company continues to move forward with purpose and intention.

Externally speaking, it is impossible to over-communicate right now. The last thing you want to do is disappear to your customers during a trying time. People are actively listening and looking for leaders in your community right now. The small business community needs its leaders too! Whether you decide to pivot your business or open new revenue streams, be sure that your messaging is loud and clear. Walk confidently in the direction you choose and then provide exceptional value within your offerings. As always, don't worry or become discouraged by an unsubscribe here or there – those people probably weren't a top customer or supporter to begin with.

COLLECT

This one is as simple as it sounds. If you have invoices outstanding (and thus accounts receivable to collect), spend time contacting each account to collect as timely as possible. Be kind and courteous if your clients and customers are struggling to make ends meet. Options include offering possible payment terms or agreed-upon interest for future collections.

ASK FOR HELP

Loans, Grants, Resources

You've probably heard the constant murmurs and various stories about the different financial relief packages currently available to small businesses. With buzz words and acronyms such as EIDL, PPP, SBA, and the Cares ACT likely flooding your brain, deciding which program to apply for is overwhelming and exhausting to say the least. It doesn’t help that rules, regulations, and directives get released and modified every few days! The bottom line is this: if your business is being affected by COVID-19, you are eligible and encouraged to apply for financial aid. Some of the loans and grants are completely or partially forgivable, while others have extremely low interest rates. There are also different options for employees and self-employed contractors to recoup lost salaries and/or wages.

The first step towards aid is to reach out to your current banker. They are likely in the beginning stages of accepting applications for the Payroll Protection Program right now. Do not wait for your banker to reach out to you, as they are likely very busy fielding incoming requests and addressing messages from other clients. The next step is to visit the Small Business Administrations website to determine if the Economic Injury Disaster Loan (“EIDL”) is applicable and beneficial to you. If you are still reading this post, your small business is likely being affected and your chances chances are probably very high! There are thousands of businesses applying for these loans every few hours, so gather your documentation and start working with your trusted resource(s) now.

Here is one resource that is updated daily by Amanda L. Kool, Director of Harvard Law.

Here is another from our small business accounting friends over at QuickBooks.

About the author

Hi! I’m LaChelle, a financial consultant and Certified Public Accountant that has been working closely with my amazing friends at Minny and Paul. If you have questions about your small business finances or need guidance on your current financial situation, please reach out to lachelle@minnyandpaul.com.