The COVID-19 outbreak has wreaked financial havoc around the globe, leaving many small business owners struggling in its wake.
72% of small businesses in South Africa said they had suffered negative effects because of the crisis. Just 5% of small business owners said they had experienced no effects at all.
While the short-term outlook for small businesses varies greatly by industry, it’s important to consider what recovery mode will look like once the economy begins to return to normal. Most economic pundits are predicting a long recovery in South Africa, reaching into 2021. Having an exit strategy in place for after COVID-19 can help you be prepared to hit the ground running and rebuild. If you’re not sure what your coronavirus exit plan should include, these suggestions can help get your business back on track.
1. Assess the Financial Damage
The first step in developing a rebuilding plan for COVID-19 is determining just how much your small business has been affected.
There are different layers involved, starting with the hard numbers. If you haven’t updated your financial statements, such as income or cash flow statements recently, it’s best to do that now. You can then compare them to last year’s numbers to see how much your business may be down. While only a small percentage of business owners say they’ve benefited from the crisis, it’s possible that the damage might not be as bad as you think.
Aside from the hard numbers relating to sales, profits and cash flow, consider other ways in which your business has been affected. For example, if you’ve had to let go some – or all – of your employees, you’ll need to factor that into your rebuilding plan. If you’ve cut down on your advertising and marketing budget, or some of your customers have migrated toward competitors, these are things you’ll need to account for as you identify financial resources to help you recover.
2. Take a Second Look at Your Strategy Plan
Your business model may have worked perfectly fine pre-COVID-19, but coming out of it may mean you have to redo the plan.
Specifically, you may need to consider how your business can adjust to a new normal. For example, if you previously relied on foot traffic to a brick-and-mortar location for sales, you may need to look at going digital to reach the higher numbers of people who are shopping from home.
You’re not in this alone. RLActive offers an online Strategy Creation tool to small businesses, which guides you through readjusting your plan to account for the changed circumstances as you look to build or rebuild your business after the crisis.
Analysing how your overall industry has been affected by the coronavirus pandemic is also helpful. When looking at your competitors and the industry, pay attention to the trends and focus on finding the opportunities. Being able to find a gap or need that your business can fulfil that’s been neglected up until now could be critical to reclaiming and expanding your customer base going forward.
Be clear about your business’s strengths and weaknesses and identify them as you work through your business plan and model. Look at what was working before that may not work as well now and see where you can adjust or improve to remain competitive. Finally, don’t forget to revisit your business objectives to make sure they’re realistic, given the current circumstances.
3. Consider Whether You’ll Need Funding to Recover
Unless you had a large amount of cash on hand going into the crisis, it’s likely that you may need some working capital to jump-start your business again.
When it comes to financing your small business during a COVID-19 rebuilding period, there are several options to consider. There are numerous options for business loans and grants.
The challenge with all these funds, is that the reserves are limited. It’s entirely possible that funding may be depleted before your application for a loan is ever reviewed. For this reason, it’s important to consider all sources of small business funding, including:
- The Solidarity Response Fund
- Department of Small Business Development Fund Debt Relief Scheme
- The South African Future Trust
- The Department of Tourism
- National Empowerment Fund
- The Department of Labour: UIF and National Disaster Benefit
- The Department of Agriculture, Land Reform and Rural Development
- Small business term loans from banks, credit facilities and online-lenders
- Business lines of credit
- Business credit cards
- Accounts receivable financing
- Inventory financing
- Purchase order financing
- Equipment financing
Each option can have pros and cons. Accounts receivable financing for example, can be convenient, and one does not require perfect credit to qualify. It could be useful for funding your business in the short term.
But it is required that you have something to leverage, i.e., outstanding invoices and credit card sales, respectively. If sales are slow or non-existent, you might have a hard time getting approved. Alternative financing options like these can also have much higher effective annual percentage rates compared to other types of small business loans and lines of credit.
If you’re considering financing to help rebuild, keep in mind that borrowing may be competitive, as lenders want some reassurance that loans can be repaid. Reviewing your business and personal credit scores, as well as your business and personal financials can help you gauge how likely you are to get approved for funding.
4. Adjust Your Budget to Account for New Spending
Coming out of the COVID-19 crisis, you may have to spend money before you can make money.
For example, you may need to spend money on hiring and training new employees or rehiring ones you had to lay off. Inventory may need to be purchased, and you might have to rev up your advertising budget again to start building afresh.
As part of your coronavirus recovery, you should have a clear idea of what you need to be budgeting for and what you can cut to make the most of the revenue you do have coming in. The goal is to eliminate fat and get your operating budget as lean as possible so that when the chance to invest in growth comes up, you’re able to take advantage of it.
An extreme step you could take during this time is deferring paying yourself a salary or taking a pay cut. Whether this makes sense depends on how well you’re able to manage your personal financial obligations, depending on what you have in savings or from a spouse’s income if you’re married. But skipping out on paying yourself for the next few months could help your business to get back on its feet faster.
5. Develop a Timeline for Rebuilding
You may have several things you need or want to do to recover following COVID-19, but doing everything at once may not be realistic. What can help is having a timeline to follow that prioritises your most important actions first.
As you take individual steps toward recovery, remember to track your progress. This is particularly important if you’ve secured capital to fund your business, because you don’t want to waste time on activities that aren’t delivering a solid return on your investment. In the initial stages of COVID-19 recovery, you may want to check in weekly to see what’s working and what’s not. Later, you can shift to reviewing your business financials monthly as things begin to stabilise.
6. Create a Contingency Plan for the Next Crisis
While the coronavirus pandemic may seem like a once-in-a-lifetime event, the reality is that an emergency can come along to disrupt your small business at any time. Using what you’ve learned during the current crisis to prepare for the next crisis can help you insulate your business from future shocks.
For instance, building up cash savings may be a priority for your business if you had little or nothing set aside before the COVID-19 outbreak began. You may choose to focus on paying down your debt and trimming non-essential spending to keep your budget in check. Or you may need to find ways to help your staff work more efficiently to cut operating costs.
The crisis may also have taught you a thing or two about how important it is to be able to adapt and keep your business running so you can reasonably weather shocks.
The more outside-the-box thinking you can do to prepare for a worst-case scenario, the better. Having a Plan B (and even a Plan C, D, E and F) can help improve your business’s odds of surviving and eventually thriving again during tough financial times.
RLActive helps SMMEs create reliable strategies to build their business. Contact us to find out more about our Strategy Creator.
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