Although COVID-19 has created operational impediments for many small businesses, it also offers opportunities to seek lucrative investments. Learn the strategies to mitigate adversities and potentially take on money-making endeavors.
With the emergence of COVID-19 crisis, many businesses have been experiencing significant hardship. Among other adversities, businesses are facing cash constraints, supply chain disruptions, and inability to meet customers’ needs. To remain solvent, it is of utmost importance that businesses work towards addressing these adversities at the earliest.
Nevertheless, COVID-19 crisis also presents opportunities for some businesses to pursue long-term growth.
Below we discuss small business strategies for overcoming COVID-19’s financial distress and seeking growth opportunities.
Cash management
Prudent cash management entails staying abreast of the company’s cash inflows and outflows. This should be an integral part of any business as it is amongst the most important factors which help the business remain solvent.
To mitigate negative financial impacts of COVID-19, businesses should limit or discontinue non-essential expenses until operations stabilize. They should look for ways to gain access to cash from working capital (accounts receivable, inventory, and accounts payable).
From a revenue perspective, businesses should mitigate the risk of losing key customers.
Inventory management
To satisfy customer needs it is crucial that sufficient inventory is on hand when required. With supply chain disruptions caused by COVID-19, achieving this goal has become a challenge for many businesses.
One way to address this issue is to offer discounts to customers who pay part or full price of the product now but accept product delivery in the future. This can potentially allow the company to prioritize its key customers (who bring about the largest amount of sale), while also benefiting from cash received for future deliveries. Other ways customer loyalty can be preserved is by waiving shipping charges, providing coupon/gift card, and offering extended warranty.
For more information on how to adequately manage inventory, read our blog Inventory Management Techniques.
Negotiate or renegotiate loans
A bank is likely to offer favourable loan terms to a client with whom it has been doing business for many years - for example, a client doing business with the same bank for many years by holding chequing/savings accounts, investments, credit card, and maintaining a history of timely loan repayments.
In addition, an open and honest conversation with the bank is needed to secure favourable loan terms. The business owner should apprise the loan officer about how the business has performed over the last several years leading up to COVID-19 crisis. In addition, the business owner should notify the loan officer about financial obstacles the business is currently facing, what is being done to overcome them, and strength of the business’ financial forecast.
Communicate effectively with stakeholders
During the COVID-19 crisis, it is in the business’ best interest to keep its stakeholders well acquainted of its hardships. Notifying employees, suppliers, and investors about the company’s financial difficulties could potentially lower their expectations with respect to compensation and return on investment (ROI). Like the conversation with the loan officer, these stakeholders should be well apprised of the company’s current and forecasted performance. Thereafter, insights and advice should be sought from the shareholders on how to rectify problematic situations and improve the company’s cash flow. This course of action would help to build rapport with the stakeholders and potentially elicit empathy and conduciveness.
Seek promising opportunities
Many businesses experience decline in their financial positions in times of crises. This in turn leads to a drop in their net worth. To the contrary, businesses that have maintained strong balance sheets over the years are better prepared to weather the financial obstacles posed by COVID-19. Such businesses also have the flexibility to seek opportunities that can provide long-term growth. For example, a business can purchase capital assets that improve efficiancy at a discount (due to low product demand) which in a non-COVID situation would have been very expensive. Furthermore, a sound financial position would enable the company to acquire another business which has experienced a decline in net worth.
Regardless of which opportunity the business seeks, it is critical to make an informed decision, and chose the option that is the safest and most lucrative. In addition to being wary of ROI, businesses should consider qualitative factors (factors that cannot be measured numerically). Likewise, a thorough analysis should be undertaken to determine if the acquired business, among providing other benefits, would improve operational efficiency and allow knowledge sharing.
Specific to COVID-19 crisis, businesses should consider investing in cloud computing to facilitate work from home, and possibly contemplate if implementing robotics automation and artificial intelligence would be a viable option.
Related link:
Blog: Inventory Management Techniques
For professional advice contact Alpha Accountzy, Accounting & Tax Solutions.
