Coronavirus will set the pace for small business recovery
‘THE MOST critical thing for you to understand is that it is the novel coronavirus COVID-19 that will set the pace and time for global and national economic recovery, and by extension, the recovery of your business. As of now, there is really no recovery timeline. I know this is dramatic, unprecedented, and hard to navigate, but there will be life after this virus and a new normal for all’.
This is a statement I found myself repeating over 100 times in meetings with small-business owners from Jamaica and other parts of the world in recent weeks and days.
Part of my own response to the global crisis affecting businesses has been to offer free 15-minute business resilience and continuity planning sessions for entrepreneurs severely affected by national slowdowns and shutdowns to contain the spread of the novel virus.
By the time this article is published, I would have had virtual meetings with at least 20 more small-business owners who were able to grab the final meeting spots in my calendar.
It is the insights from my meetings with these entrepreneurs that I have set the goals for this week’s column, which are to share common challenges faced by small businesses and solutions and resources that are helping them stay afloat and to encourage other professionals to immediately donate some time and expertise to support vulnerable micro and small-business owners now.
COMMON CHALLENGES AND SOLUTIONS
Sales decline and increase in receivables: A precipitous fall in sales is the most common challenge facing small businesses now. With the exception of one US-based business, every entrepreneur I met with reported declines upwards of 35 per cent to even 100 per cent in sales, due to government closure orders and restrictions on movement and travel, to name a few.
To make matters worse, businesses are reporting increases in outstanding receivables as existing customers either refuse to pay as they hold cash or are simply unable to satisfy current credit debts.
Unfortunately, effective solutions for these declines in sales and increased receivables are few for some and non-existent for many. Strategies to pursue include:
Opening new customer channels such as delivery for product-based businesses or distribution via pharmacies, supermarkets, shops and gas station marts has allowed some businesses to continue to make sales, though nominally, for some businesses;
Offering discounts has also been a useful tool to get customers spending on non-essentials at a time when discretionary spending is drastically declining;
In-home service or shifting to virtual-service execution has been a small beacon of light, allowing some service-based businesses to continue to earn despite a precipitous drop in sales. For example, online meetings, training, coaching, and consultations, and even virtual parties;
Forward-selling and adjusting pricing strategy and bundling are also ways some businesses have been able to push sales in these times. For example, some companies are offering specials on services from May to August, which clients pay for now at a specially reduced rate;
Shifting to online selling and partnering with various deal sites to reach customers confined to their homes;
Pivoting to new services or products that are in demand or putting existing equipment and resources to new use;
Revising credit terms or temporarily suspending credit for customers depending on cash flows, market dynamics and customer relationships;
Creating a receivables strategy to negotiate with customers to pay down their debts in increments rather than to clear lump sum amounts, which may not be possible at this time.
Increase in payables and inability to meet fixed costs: As a consequence of the fall in sales, many businesses are pressed to meet their fixed costs such as rent, maintenance, some insurances, subscriptions, salaries of key staff, statutory obligations, insurances, utilities, to name a few.
While some are exploring loans or lines of credit from various financial institutions, the challenge is that borrowing in these uncertain times may put businesses further in a hole. Depending on the type of business and market realities, it may be not be helpful to take on new debt. As staff costs are usually the highest for many businesses, a few solutions that companies have explored are:
Temporary shutdown to reduce most fixed costs;
Staff rotation or lay-offs; Full implementation of remote work;
Reduced office hours and adjusted variable pay;
Negotiated new rental or payment terms with landlords; Surrender of rented properties; Delayed or staggered payments; Shifting from manual to automated process execution or delivery; and
Cancelled subscriptions, licences, and temporarily suspended contracts.
By far one of the most important insights I have taken away from meeting with over 100 entrepreneurs in recent weeks is the desperate need for business advice, support, and in some cases, a listening ear to bounce ideas off. Information is priceless in this time, and some business owners are operating in skeletal fashion, lacking the human resources and wherewithal to seek out information and resources as they struggle to keep their businesses from bottoming out.
It’s why I am making a special appeal for professionals such as accountants, commercial lawyers, audit and risk-management professionals, business advisers, trainers and coaches, and government and non-profit agencies that have relevant expertise to offer much-needed support to the MSME sector now.
Our economic survival depends in large part on how small businesses navigate and rebound from this crisis, and they need all the help they can get.
One love!