Another crazy week means more crazy decisions for all of us entrepreneurs! By most accounts we are dipping into a recession that may last weeks, months, or even years. Unfortunately, nobody really knows where we are headed due to the coronavirus, but we do know the downward slope will likely last a minimum of one or two more months. Which means, as an entrepreneur, you are going to be forced to make drastic moves to come out of this alive. As you continue to prepare your company for survival mode, be sure to have the following things at the forefront of your mind:
Prepare for a long recession
Don’t prepare for a two-four week recession. Don’t expect everything to bounce back as soon as quarantines are lifted and businesses are reopened. The recovery of our economy is going to take time. It will take time for both the economy and the human population to regain confidence in the system. It will take time for the world to readjust to this new form of normalcy. Therefore, prepare for a long recession that may not fully recover until 2021 or 2022.
It's going to get WORSE
I hate to be Mr. Pessimism, but you need to be ready for things to get worse. With coronavirus cases doubling every three to four days, we’re only getting started. The U.S. government has peak deaths occurring in the next 2-3 weeks, meaning, our country is going to be on lockdown for at minimum of 30 more days. With that in mind, be cognoscente of the fact that your customers are currently cutting expenses just like you, even with the $2 trillion stimulus package.
You need to manage your cash flow
The key to your survival as an entrepreneur during critical circumstances is managing your cash flow. Your entire goal over the next couple of weeks, is figuring out how you can improve your balance sheet by paying out expenses LATER and receiving cash SOONER. Here are a few ways to start improving your chances of survival:
1. Cut a deal to lower your monthly rent.
Rent is likely one of your largest expenses, so figure out how to decrease that monthly expense. Take a moment to call your landlord and negotiate deferred payments or lower rent. Also, be sure to look into “The Cares Act” to find out how a small business loan might be able to cover your monthly rent interest free. Quick tip: Whatever you do to reduce your monthly rent, be sure to remember that your landlord is also running a business with very real expenses. They would much rather have you stay in the building by lowering rent, deferring payments, or getting creative with paybacks than have the space vacant for a year. Be sure to talk to your landlord as you would any business partner and figure out what works best for both parties.
2. Can you save on utilities?
Take a look at all of your utilities like water, gas, electric, internet, cable, and phones. You may not have wiggle room with water, gas, or electric; but be sure to do a deep dive into your internet, cable, and phone bills. Identify what you are currently paying and then call your vendor’s competitors and ask what kind of deal they would offer a small business looking to save money on utilities. Explain to them that you would be very open to switching vendors even if the large discount was only for the remainder of 2020. Once you’ve gathered a few significantly better prices, go back to your current vendors and inform them that you will be switching if they do not match the same deals. Remember, you rather have your current vendors match or come close to matching the offers so you don’t actually have to deal with all of the work of setting up a new service.
3. Stop spending money on stuff you don't need.
It’s time to make your company and lifestyle as lean as possible. I know my wife and I just cancelled our gym memberships and some of our coworking memberships in preparation for the likely recession coming our way. So take a moment to identify those subscriptions and monthly memberships that are slowly eating into your bottom line. Do you need that magazine subscription? Do you need to have cable at the office? Do you need to be spending $100 – $200 on a marketing service that provides minimal value? Trim the fat off of your business. Quick tip: Trim the fat off of your business in every category except expenses connected to employee moral. Still spend a small amount on celebrating birthdays and make sure the coffee machine works. These small expenses are worth keeping your employees spirits high.
4. Payables later, if you can.
Talk to your vendors and find out if you can get better terms. Ask your vendors for longer payment terms. If they won’t give you longer terms, ask if they would give you a discount for paying early. Do all you can to have more cash in your bank account right now. Having extra cash for the next two weeks may play a direct role in your survival.
5. Double-down on your best customers.
Times are going to get tough, meaning, you won’t likely have the budget to go out and try to acquire new business. Therefore, it’s essential that you focus on your best customers (large accounts, email lists, regular shoppers) and make them extra happy. New business is going to dry up, and if you lose your current business you are in big trouble. Remind your customers how much you appreciate their support. Send emails explaining that you are preparing to make their experience with you better than ever once businesses open back up. Ask them to reach out if they need anything and offer to bring them items if they fear leaving the home. Most importantly, be sure they know that you are concerned about them and their needs during this difficult time.
6. Lower your inventory costs.
How much cash do you have sitting on a shelf in the form of inventory? If you are like most businesses, you likely have an overload of stock. Walk through your inventory and decide if you really need 20 “Tiger King” t-shirts for the possibility of a large shipment (actually you might need those, but you get my point). This is the moment that you need to reduce inventory and free up some cash. Think of this time as a unique opportunity to finally liquidate some of the inventory customers barely buy and then keep that cash in your accounts. Whatever you choose to do, be sure you have less and less inventory every single day.
7. Change your marketing message.
People are going to change their spending habits over the next few months… and that means you need to change your marketing strategies to meet those new habits. People are going to need to get more value out of each of their purchases to make it worth it (because EVERYONE is hurting). This doesn’t mean decreasing prices, but it does mean you need to put extra emphasis on the true value you bring to each customer.
8. It's time to let people go...
This is one of the hardest parts of being an entrepreneur. It’s terribly difficult to look your employees (now friends) in the eyes and say, “I need to make some deep cuts today.” Yes, I said deep cuts. If this recession is on the verge of striking your business dead, you need to layoff your staff and you need to layoff enough of them that you don’t have to do it a second time. You can’t afford to lay people off twice… that would destroy moral and it would make every single person on the team terrified of losing their job.
If you foresee layoffs in the future, do it sooner rather than later. It’s going to be super painful, but once it’s over you’ll be able to take a breath of fresh air. Plus, then you allow the remaining employees to stop worrying and get back to helping the company survive.
9. Reduce peoples hours.
Figure out how to reduce peoples hours and salaries. Consider cutting hours and pay equally to increase the amount of cash on hand. Also, be sure that your store hours are a NEED. Do you really need to be open from 10 a.m. – 8 p.m. if the hours of 1 p.m. – 5 p.m. are empty? Consider changing things up. It may seem out of the ordinary to have store hours ranging from 10 a.m. – 1 p.m. and 5 p.m. – 8 p.m., but cutting employee expenses by decreasing open hours during nonessential times may lead to one less layoff. Plus, customers may not even notice your hours changed!
10. A real entrepreneur cuts their salary.
Sadly, it’s time to stop taking a salary. If your employees don’t see you sacrificing more than them… well, you can imagine how awful that outcome would be. Even if you cut salaries by 50%, your employees are going to have a dramatic dip in productivity if they don’t see you taking the same pay cut.
11. Don't sugarcoat it.
Be brutally honest with your entire team. Explain the situation and how bad the circumstance is for the company. You need to unify your crew by cultivating an attitude of “we’re going to fight through crisis together.” Make sure you show the entire team your books (or at least a slight overview) so they can see how ugly the cashflow really is. Lastly, don’t be afraid to ask more of them. Getting through this crisis isn’t all on you. You may be the leader, but you are going to need plenty of help to survive the next 6 months. Including your team in the survival process is commonly enough to motivate them.
Keeping your business afloat during this crisis is going to be difficult, but it is possible. You need to make realistic goals and plans to survive the next 6-12 months. Take the time to cut deep now, because you don’t want to go through this entire process again in 6 months.
Good luck and please don’t hesitate to reach out for help.