If you’re a small business owner, you probably took a major financial hit during the dark times of the COVID-19 pandemic. Right now however, you should probably be congratulating yourself – you survived over a year of turmoil!
With a light at the end of the tunnel shining brightly as more Americans get vaccinated, now is the perfect time to plan your company’s financial turnaround, provided you’re willing to rethink your operations, cash flow, employment situation and potential financing.
Rethinking Your Cash Flow
Maintaining a healthy cash flow is one of the most important aspects of running a business, as it impacts every area of day-to-day operations – both current and future. If the last year and a half taught us anything, it’s that you never know what can come around the corner and negatively impact your cash flow, so it’s important to address this head-on, and there are a number of areas where you can do that, but a great place to start is your collections and billing processes.
Tackle those outstanding invoices
Lazy bookkeeping, the pandemic, and other factors could have resulted in a negative cash flow for your business over the past year. While outstanding invoices are positive assets on your company’s balance sheet, they are useless until your customers actually pay them. If you’re behind on collecting invoices, or if your customers are slow to pay, one strategy that could be useful to you is invoice factoring – financing that quickly provides you with cash tied up in outstanding invoices.
Review and Adjust Your Process
As you ramp back up post-pandemic, take advantage of the opportunity to do a complete review of your billing and collections policies. Many times, a review will reveal some holes and/or inefficiencies that, if corrected, can have a substantial impact on cash-flow stability. Once you’ve defined any gaps, consider implementing invoice management software, such as Quickbooks or Invoice2Go – useful tools that can automate the invoice, payment processing and collections systems for your business.
Negotiate with Vendors
Healthy vendor relationships are almost as important as a healthy cash flow, and one way to maintain a great relationship with your vendors and suppliers is to negotiate contracts that are mutually beneficial. Suppliers generally want to keep you as a customer, so it never hurts to ask them if you can renegotiate prices and payment options, at least until the economy gets back on its feet. Be honest about your financial situation and propose a solution that seems mutually beneficial, such as longer-term payment options.
Restructuring Your Business Should Be a Consideration in Your Company’s Turnaround
Operational restructuring should be a major consideration in any organization’s financial turnaround. Look for costly and redundant processes in your business and have a plan to streamline or outsource them. Consider that it could be cheaper to outsource certain services to freelancers or outside firms. For example, if you’re a small publishing company, it may be cheaper to streamline production services for all of your publications and hire freelance writers. If you’re a doctor’s office, for example, it may be cheaper to outsource x-ray analysis work to radiologists in a different country.
Prepare for Rapid Growth
As the COVID-19 pandemic winds down, most small business owners and economists are expecting the economy to grow. The national unemployment rate dropped to 6.1% in April from 14.8% a year ago, according to the Bureau of Labor Statistics. Consumer spending has increased by over 40% in 2021, while it was down by nearly 30% in 2020, according to the Bureau of Economic Analysis.
Whether you’re a construction company, a restaurant or retailer, you need to be ready to handle this growth. You should sit down with your accountant and produce a realistic, three-year business plan that accounts for an increase in sales, operational growth and an increase in your number of employees. Some factors to consider:
- During the pandemic, employees have gotten a taste of working from the comfort of their own homes. If you’re a small business that operates out of an office and you want to permanently move to a remote working environment, you should consider relocating your company headquarters to a smaller, less expensive and more tax-friendly location. However, if you do this, talk to your accountant about the tax implications.
- Consider financing to handle growth. More business should be coming your way over the next year. Whether you’re a construction company that needs a new excavator, or a restaurant owner that wants a new brick oven to make your famous pizzas, you may consider new financing that you can repay as your business grows. Kapitus offers a wide array of financing options such as equipment financing, a new line of credit or a business loan that could help you with that.
- As business grows, you will probably need to hire additional employees. When you do, it is important to make sure that you are hiring within your means. The number of additional staffers you hire should be in lockstep with the rate at which your business is growing.
While the pandemic was a source of severe economic strain for many small businesses, there is a bit of a silver lining: It has created a valuable opportunity to rework aspects of your business that you may have had to put on hold in the past, which puts you on the road to recovery while providing a stronger foundation for your business in the future.