Financial steps that small businesses must take immediately to survive the COVID-19 crisis

Small businesses are struggling amid the COVID-19 crisis, and no one knows when things are likely to go back to normal. The current crisis has led to a tough situation for companies. Even the government’s stimulus package of $2 trillion will not be able to alleviate the worries for US small businesses as it seems. 

Under the circumstances, to get the companies to the best possible position, small businesses should take the following financial steps.

Optimize cash flow

We are going through unprecedented times. Small businesses must make the best use of their soft skills to apply some of the known techniques of financial management but in a tailored manner to navigate the tough times that customers and suppliers are going through.  When approaching customers for money that they owe, you do not be hesitant to pursue the cause with conviction, but without hurting their sentiments and being empathetic towards them.  Plan for reaching out to customers to collect past due bills that are most needed for your survival and make a marked difference between survival and failure of your business. Remember that you need to retain the same customers when you come out from this crisis, and your approach must be to stay firm but fair.

If your business is of the type that can maintain operations during this time because of belonging to the essential category, you must rethink your payment terms. Consider shortening of payment terms for new businesses you acquire and by considering their financial position even think of prepayment or retainers.

Build three forecasts

To comprehend the future, you must start working on building three forecasts – a best-case one, a likely realistic one, and a worst-case scenario about what happens if customers who owe you money keep dragging for months because they go out of business. The situation is ever-changing, and what happens next hour is uncertain. By creating the scenarios, you will be in a position where you can see whether you will have a shortage or surplus. This will then help you to work out the means of mitigating the shortage and finally overcoming it.

Make provision for the cash shortage

Considering that shortage is the most likely outcome, it makes perfect sense to prepare for it and plan for reducing expenses to the best possible extent. Monitor your expenses meticulously and cut capital-intensive and discretionary spending wherever possible.  Focus on the components of fixed costs and identify the ones you can reduce like rent. Take up with your landlord and have an open conversation to negotiate afresh for reducing rent or get better terms. Landlords would like to support people who have a plan and honest intentions to make their business survive amid the crisis.

List your expenses according to priority and see what you can avoid and what you can reduce. But remember that such actions can impact people at some point in time and try to avoid or delay such possibilities. The federal funding from Small Busines Administration that offers generous terms and low interest should help many small businesses to cover shortages.