Here’s how you can recession-proof your business for the long-haul
I have one number for you: 7.5 million. That’s the number of small businesses in danger of closing due to COVID-19―nearly 25 percent of the 30.7 million small businesses in America, according to the US Small Business Administration.
If you’re reading this and you’re still in business, congratulations! You’re part of the 75 percent who have survived one of the worst economic downturns in American history. This hasn’t been easy, but weathering an economic crisis such as this means you’ve positioned your business well.
Perhaps you’ve had to make some very tough decisions. Maybe you’ve even had to let people go in order to right-size the P&L. Many business owners have had to tap emergency reserves or pull down their lines of credit entirely. None of these are easy decisions.
While I’ve seen many businesses struggle to adapt to the new COVID-19 economy, I’ve watched my own business grow and my employees thrive. We’ve only been able to do this because of years of preparation and focused effort. Let me share three simple things that you can be doing right now to save your company and recession-proof it against future downturns.
1. Trend is your friend
You have to analyze your data and ask yourself questions. If your business has a retail focus, how have buying patterns changed during COVID-19? What percentage of your business has exposure to brick-and-mortar stores? What is your digital strategy and how has that performed during the lockdown? Is your product sought after in good times and bad? If not, how can you create that?
These are data points you must understand to position your business correctly.
If you’re a service-based business, how essential are your services, and what’s your transition plan if COVID-19 flares up again this fall? How can you continue to gain new clients or grow your business with existing customers while social-distancing? Does your digital strategy align with how people are seeking out and utilizing services in a “Corona World”? Being nimble, thinking outside the box, and garnering goodwill with your existing customer base just might be the thing that carries you forward.
Let’s compare and contrast for a moment: All TJ Maxx stores have been shut down since the beginning of March. If you’re a vendor to a store like TJ Maxx, all of your orders have been canceled and your payment terms have been extended indefinitely. Not a very good position to be in, right?
On the opposite end of that spectrum, local home-goods seller Overstock.com has seen more than a doubling of sales in the past 90 days, as consumers have flocked to the internet to buy home goods that will accommodate their new work-from-home environment. If you didn’t have a digital retail partner like Overstock.com before, maybe it’s time to reconsider your strategy.
I recently spoke with a prominent local strength trainer that has a robust social media following. For the last eight years, his business has been entirely in-person and gym-based. In early March, his gym was forced to close to help flatten the curve, leaving him without an office from which to work. He immediately set about restructuring his business to be entirely virtual, doing strength training sessions from the basement of his home with his entire clientele. The desire to work out didn’t go away, but he needed to pivot in order to continue providing that service to his customers.
2. Take advantage of new talent
“Hiring the right talent is the most important key to growth. Hiring was—and still is— the most important thing we do,” says Marc Benioff, CEO at Salesforce.
A recent job report indicates that 39 million people have lost their jobs in the last 90 days. Unemployment is expected to spike to 25 percent in the US, and potentially low teens in Utah. Lots of hard-working and smart people have found themselves looking for a job, and they are motivated. Job postings that would historically garner ten to twenty resumes are now getting hundreds of applicants. COVID-19 won’t last forever, so take advantage of this moment to build out the team that will help you exit this downturn and position your business for success in the future.
3. Become financially responsible
Nobody predicted a global pandemic would completely shutter many parts of our economy, but anyone that lived through the last downturn knew something was coming. Many businesses did not have a contingency plan in place to weather a financial storm. Many did not allocate a percentage of their profits to savings to float their business for a period of time in case of an economic downturn.
We’ve grown accustomed to businesses losing money for far too long, relying on the next round of funding to keep them afloat. While that method might work for some time, only businesses that produce profits will survive in the long term―perpetually losing money is not a viable business strategy.
Ask yourself: what’s your burn rate? How much do we need in financial reserves to carry our business if the economy shuts down again? What type of debt/equity financing or line of credit makes sense for our business so that we can keep the lights on if revenue is severely impacted in the future?
Utilize your accounting team to craft a Pro-forma P&L that models a drop in sales and what that does to your profitability. Know what could happen in order to position your business for what might happen.
We are not out of the woods yet. Until a vaccine is created, COVID-19 will be a major factor in our economy, but rest assured, economic growth will begin in earnest again at some point. The decisions business owners make today will dictate how well they recover and the momentum they carry into the next upswing. Adapt to the trends, build out the best team possible, and become financially responsible so that your business is a winner when the next crisis hits.