Many states are starting to allow businesses to reopen, but the impacts of the pandemic will continue to linger. Whether America returns to some semblance of normal in a few months, or it takes a while longer, most economists and business groups agree that the road ahead will not be easy. Since many businesses were forced to shut down, at least temporarily, that will, unfortunately, lead to hundreds of thousands of permanent business closures as revenue dries up, but overhead costs remain.
For the businesses that do survive, there’s one question that needs to be answered: what will the post-Covid economy look like? A recession is widely expected, with some more pessimistic observers fearing a more severe depression.
The good news is that there are things that businesses and their accounting firms can do to help strengthen their position and at least diminish the effects of a potential recession. In the near term, there are also many business stimulus options that can, at least, provide bridge funding. The faster that action is taken, the more effective it may be.
The Impact of COVID-19 on Business
Some businesses may not be affected.
Some industries have been able to continue functioning with little economic impact, and others have seen some increase in revenue. In most states, grocery stores and restaurants that were already delivery or pickup focused (like pizza) have been able to continue almost without interruption, although often with restricted hours of operation.
Other businesses may be devastated.
Dine-in restaurants and entertainment-focused businesses were required to shut down completely in most states. Those two or more months of zero revenue, and a reluctance that many Americans may feel to congregate in restaurants or social activities until there is a vaccine or effective treatment for Covid, have and will continue to financially strangle many of these businesses.
Accounting firms are mostly stable.
With business clients needing more guidance than ever before, and the tax season pushed back, most accounting firms with modern technologies were able to rapidly move to a universal work-from-home workforce. The continuation of business stimulus programs and the monumental tax code changes that will certainly come at year’s end generally ensure that firms will have plenty of work. But if too many of their business clients dissolve, accounting firm security may waiver as well.
Accounting firms that have diversified their services, particularly those who have balanced their revenue streams by transitioning clients to subscription, value-pricing, will be the most prepared to endure potential economic stresses. These firms can even thrive during a recession. (https://www.investopedia.com/financial-edge/0811/9-businesses-that-thrive-in-recession.aspx)
8 Business Tips to Survive an Economic Downturn
For the remainder of this article, I’m going to focus on things that small businesses can do to survive an economic downturn in a better position, and what accounting firms can do to help them.
1. Focus on Strengths
Most small business owners got into business because they loved doing something. It was either a passion, they discovered they were good at it, or they just saw an opportunity to achieve success. Since then, while growing their business, they likely offered additional, peripheral services and products to enhance revenue. Well, it’s time to get back to basics.
Identify the core products or services the business offers, analyze its revenue history and potential, and reduce or eliminate those products or services for which there is, at least temporarily, not a market. The most visible example of this is restauranteurs who have had to close their dining rooms.
A restaurant’s core product is their food. Although a different method of service had to be improvised, many were able to transition to delivery services. While the major apps charge fees that eat into restaurant profits, the restaurants are able to adjust their pricing, to some extent, without risking too much customer backlash. In many cases, the restaurants have also pared down their menus, allowing them to focus on signature dishes and more profitable menu items. While doing this does not help all of the restaurant’s former staff, it may help generate enough revenue to meet overhead costs, at least for short term needs. In the long term, restaurants will open again, and consumers will eventually regain confidence in their safety.
2. Examine Your Cash Flow
An economic downturn will hurt some industries more than others, but almost universally, it results in decreased revenue and lower profits and margins. While the government stimulus packages may have helped some businesses float above water while their revenues were essentially nil, those programs can’t last forever. But neither will the pandemic.
As businesses reopen and customers come back, however, it is unlikely to be instantly at the level where it was before the economic storm. So, businesses need to prepare for cash flow to start as a trickle, and then slowly increase.
The most obvious first step is to reduce spending. Identify costs that can be eliminated or reduced. For instance:
- cable tv services,
- changing thermostat settings on unused areas of the business,
- temporarily suspending some optional third-party services,
- and cutting back or suspending marketing activities.
Other items may be necessary, but negotiable to lower costs. Businesses may also be able to get better deals by changing vendors. Although long-standing business relationships should not be too easily disregarded, as those partners may also be facing the same economic challenges.
3. Automate Your Processes
Business process automation generally refers to digital processes like payments, orders, reporting, and integration, but the same theory applies to manual processes. Doing more in fewer steps will save time and money in both the short and long term. This can free up staff to do more profitable activities.
4. Refinance Debt
Interest rates are at all-time lows, although lenders may be hesitant in this market to invest in businesses with uncertain futures. However, if restructuring/refinancing business debt is possible, this is a fast way to reduce costs and save cash on hand.
5. Sell Prepaid Gift Cards/Gift Certificates
Many of your loyal customers and community members may not have been as adversely impacted by the economy as others. These individuals may be willing to purchase gift cards for themselves or others, which can give the business cash now for a service or product to be provided later.
6. Sell Accounts Receivable
Many financing companies will purchase accounts receivable from small businesses. While this is not a long-term solution and is somewhat comparable to a payday loan, it can provide a short term injection of cash.
The downside is that the AR accounts are purchased for varying percentages of their actual worth. The financing companies examine the company’s history and finances, and that of the debtors, before making the percentage-based offer.
7. Reward Your Best Clients and Customers
While the economy stumbles, consumers will tighten their belts. However, they are still more likely to use their preferred stores/businesses/restaurants for the feeling of normalcy or the relationships they may have with the staff or owner. At the same time, they are less likely to try new experiences and new vendors.
So, it’s a good idea to limit marketing to new customers to free up cash, and to spend a little to reinforce messaging to already loyal customers. This adjustment can offer far greater financial rewards. Ideas for this type of marketing include:
- customer loyalty cards,
- discounts for VIP customers,
- customer referral discounts,
- special events,
- an increased tier of customer service,
- and more.
8. Reach Out to Lapsed Clients
While your best current customers are the most receptive to business messaging, prior customers who were regulars or long-term can also be worth reaching out to. Depending on the nature of the business, this information may be readily available, along with client histories, in your CRM or contact management systems.
Keep in mind that the pandemic will subside, and the economy will get stronger again. Consumer confidence will return, and with it will come a new normal with strengthened and streamlined business processes that can withstand economic storms.