With insights from Kellen Jemeyson, Head of Strategy at Smart.
Across industries, many leaders are at a crossroads deciding what this year means for business. Enough pivot ideas are surfacing to pilot three new departments. Everyone and no one has a solution, yet the small business world is soldiering on—and that's pretty inspiring.
But perhaps it requires us to remember a few simple tips: we have the power to assign meaning to our circumstances. We can control the outcome with a strategic course of action. Positive recovery is all a matter of perspective. In other words, 2020 could be a panic-stricken year of cutting losses—or we could make it a year to improve upon the current plan to optimize revenue.
As the saying goes, life is 10% what happens to you and 90% how you react to it. From Steve Jobs to Sarah Blakely, you'll be hard-pressed to find one success story that's not laced with a growth mindset. Only now, we have a rare opportunity to rethink the moving pieces and collectively execute with cautious optimism. It wasn't the plan, but we'll take it (and mentally fire COVID-19 along the way.)
The question remains, how do we approach the unknown and, where do we start? While professionally, it may seem like we're powering through an episode of the Twilight Zone (that's running way too long), there are countless examples of businesses who get ahead.
With that in mind, we've put together the following insights on what steps small businesses should be taking now.
If you've scaled down, are you prepared to scale back up?
Reducing operating expenses is widely known as an effective short-term strategy to offset the loss of revenue. And, naturally, many small businesses opted to modify vendor terms or temporarily reduce labor under the present circumstances. However, these changes were well suited to compensate reduced volumes, but you'll need to have a plan in place to re-engage vendors and re-hire staff as the economy slowly regenerates.
For example, many companies have laid-off or reduced staff hours to free up working capital. Yet, reports indicate 79% of small businesses anticipate bringing back most of their employees once the economy stabilizes. As part of your COVID recovery, you should have a clear idea of your plan to reinstate or hire new staff. Additionally, you'll need to be prepared to potentially incentivize them to return, given the increased unemployment benefits.
As you develop a plan to put the appropriate resources back into place, creating a monthly layout around how you intend to use cash flow will help ensure you don't run out of funds. Often referred to as cash burn, not going through this calculation accounts for 29% of why businesses fail, according to 2019 reports.
We advise business owners to use these analyses to start restructuring your 2020 operating budget. To have a more realistic projection, you should account for reinstating employees, vendors, debt obligations, and monthly cash spend.