COVID-19 has proved that all businesses need a backup plan. Here’s how to put yours in place.
It’s estimated that more than 100,000 small businesses have permanently closed their doors in the wake of COVID-19, and many more have no doubt come close. Thankfully, there’s been some relief for small businesses during the ongoing crisis and recession. Paycheck Protection Program loans, for example, have been instrumental in helping companies retain staff and prevent layoffs, while Economic Injury Disaster Loans have been a lifeline for businesses that needed money to keep up with their expenses and financial obligations.
But if there’s one thing the COVID-19 crisis has taught business owners, it’s that they need a backup plan in case disaster strikes. In fact, in a survey of over 500 business owners by payroll and HR solution company Paychex, roughly 54% say they intend to create a crisis management plan once the pandemic is over. If your business is in need of such a plan, here’s how to go about putting one together.
1. Amass some emergency cash for your business
Just like people are told to set up an emergency fund with enough money to tide themselves over for three to six months, so too should your business have similar cash reserves. Once the COVID-19 crisis passes, be vigilant about banking cash, even if it means putting the brakes on things like new equipment. While investing in your business is a good thing, it’s more important to have adequate cash reserves in case you’re forced to shut down for a period of time and your revenue drops in an instant.
2. Put a line of credit in place
When the COVID-19 crisis struck, many small business owners clamored for loans or lines of credit, and many banks weren’t biting. If you don’t have a healthy line of credit in place already, it pays to apply for one once we’re no longer grappling with a pandemic and banks are more likely to be feeling generous. It will also help to apply at a time when banks aren’t overwhelmed. Where should you apply? If you already have a business account at an existing bank, that’s a good place to start. You can also try applying at a community bank.
3. Find ways to reduce expenses
If your business was thriving or doing reasonably well before the COVID-19 crisis, you may not have put much thought into cutting back on expenses. But now that you’ve seen how an unplanned event like a pandemic can turn your business upside down, it pays to work on keeping your operating costs as low as possible. Ideally, you should already have a business budget in place. If so, comb through it and see where you might cut corners. That could mean switching vendors, reducing full-time staff, or maintaining less inventory.
4. Figure out how you’ll pivot
During the COVID-19 crisis, a lot of brick and mortar businesses shifted to online sales. Your business needs a similar plan in case circumstances make it impossible to operate normally in the future. If you’re a cafe, your pivot might involve switching your model to food delivery. If you’re a yoga studio, your pivot plan might involve switching to online classes. Have that idea in place before there’s a need to revert to it.
The COVID-19 outbreak and subsequent recession caught too many businesses off-guard. Work on establishing a backup plan, because you never know when something similar might happen again.
To learn more about banking for your small business visit FirstMidwest.com/SmallBusiness