Even if all you had to worry about were the quality of your company’s products or services and continued growth of its customer base, running a business would be challenging enough. No one can precisely predict what factors can impact the economy. Sometimes, they seem to come out of nowhere, as with the coronavirus outbreak, which in addition to its personal toll, has made companies of all sizes rethink their short- and long-term plans.
An estimated 1,300 Tucson-area companies sought federal aid to survive during COVID-19, and while University of Arizona economists note that the current economic data puts the magnitude of the current downturn around the same size as the 2008 recession, they believe it to be much shorter in duration.
Much like 2008, weathering the ever-evolving conditions of COVID-19 involves keeping up with trends and forecasts for your specific industry, following broader assessments of the economic outlook, ensuring the safety of your employees and, most important, taking a close look at your own operations. A careful review of your internal processes and your key relationships may prompt you to make changes that could make your business more efficient, flexible and resilient under the circumstances. As you respond to the impacts of COVID-19 closures, here are some challenges and key steps to keep in mind:
Take a look at your cash flow
During both good and bad times, cash flow can be a central challenge for businesses and is often cited as a top reason small business fail. Companies with great products and loyal customers 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. In a difficult economy, lenders may be especially cautious about companies they don’t know well. In fact, most lenders like to understand how a business performs over an entire business cycle. During good times, have you made capital expenditures to grow the business? During bad 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”
When a cyberattack takes down your website, a natural disaster strikes or a public health crisis emerges, your company’s everyday operations can be threatened. The risk of adverse events may be greater than you think, and they can be particularly devastating during times of economic stress.
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. Preparing your company to withstand challenging circumstances can make the difference between re-building and going out of business.
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 during an economic crisis can backfire. Instead, take stock now of all of your processes, from front-line to back-office functions, to determine what kind of savings might be possible when needed.
Make a plan for what to cut. Work through “what if” scenarios ahead of a downturn to determine the least painful and most effective reductions. Consider renegotiating agreements with suppliers or adjusting payment terms to align with revenue cycles.
Invest in automation and advanced industries where possible
Automation can be an opportunity to re-train or re-focus employees on more value-added areas of your business. 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. In 2019, CBRE, the largest commercial real estate services company in the world, named Tucson its top “opportunity market” for tech talent among its categories for smaller and mid-sized markets.
Competing in business today requires endless resilience amid disruptions that can reinvent entire industries without warning. The Tucson community knows resiliency. Our economy experienced a slow recovery following the 2008 recession, but nonetheless, prevailed. The steps outlined above are best practices that can help make your company stronger in the face of COVID-19. 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.