This is the second article in a series of five that talks about small-business recovery after the COVID-19 pandemic. In this article, we will focus on the financial aspect of recovery. This article will provide general guidance that works for almost all small business sectors.
In normal times, the financial position is crucial for the business because it is one of the most important factors if not the most important one that will determine the business' ability to make any move. Therefore, it is important for business decision-makers to be very aware of their financial capacity by having a thorough understanding of their financial status and a clear financial projection for the future.
In crisis times, the business' financial status is the first element to be impacted when a crisis hits and the last one to recover after the crisis. During the crisis life cycle, most of the critical decisions regarding the crisis will be connected in a way or another with the business' financial status. Although it is important in times of crisis to pay attention to all aspects of the business such as the people, the location, the operations and the data, the real action to encounter the crisis will be associated with the financial decisions.
When your business is in crisis, time is not on your side. Business leaders need to act quickly and decisively. There is a relationship between the accuracy of decisions and planning. Right planning will help make good decisions. To be able to plan well, you need to have the right assessment for the situation. Thus, to make the right financial decisions that will help your business move forward during the crisis, it is recommended to apply the "ASSESS - PLAN - ACT" model.
Step 1: ASSESS Your Business Financial Position
The COVID-19 pandemic caused financial damage for most business sectors. Though, some business sectors were suffering before the pandemic, such as retail businesses. It is important to differentiate between the financial damage that the crisis causes and the financial damage that your business was already experiencing. To distinguish between the two damages, examine the facets of financial damage that affected the market and the competitors in general. Most probably this will be the damage that was caused by the crisis.
Tip No. 1
Update your financial data. Work on knowing where you exactly stand financially. Monitor your sales, cash flow, overhead, inventory, break-even points and profits margin. Keep track of updated numbers and compare the numbers from time to time. This way you will stay informed of any changes and be ready to work for recovery.
Step 2: PLAN Proactively But Carefully
Crisis times are not normal times. Therefore, the business activities need to be adjusted to respond to the market need. Planning through crisis requires concentration on what activities can ensure moving the business forward with the lowest risk. It is important to develop a budget that can secure stability rather than profitability.
Tip No. 2
Think about what you have (i.e., expenses) before you think about what you would anticipate (i.e. revenue). In financial terms, before you think about how to increase revenue, focus on how to lower expenses where possible.
Prioritizing is crucial in times of crisis. The financial plan needs to focus on how to keep the most important sources of revenue. It is important to give priority to spending on the main products and services that secure most of the business revenue. Making sure that the priorities are defined based on the numbers will help save the financial status of the business.
Tip No. 3
Refocus your work on the main work streams that secure the highest revenue with the lowest possible expenses. In crisis times, you are not looking to new markets and customers. The most important thing is to keep your business alive.
Step 3: ACT Wisely
One of the benefits of crisis is that business leaders discover new potential for their businesses. It could be in the way they run the business or the new ideas they can approach to develop the business. It’s known that the business' financial situation is most closely related to almost all elements of the business. This means that applying any new business idea will have an influence on the business' financial situation. And in return, any financial insufficiency will impact the whole business.
Tip No. 4
As a leader, most of your critical decisions regarding the crisis will be connected in one way or another with your business' financial status. Thus, in times of crisis, deciding to apply any new idea or make any new decision should only depend on the opportunity to support the business' financial status. Before you make decisions, think about your business financial status first, second and third.
Tip No. 5
Get the advice from the people who know. Refer to your financial adviser, banker, accountant, bookkeeper or CPA will save you from making decisions that you may regret later.
In conclusion, maintaining the business' financial status will be the most effective element that will help you move forward in the crisis response and recovery journey. Protecting the business from failure always depends on the ability to make the right decisions based on the numbers the business has.
Originally from Jordan, Jalal Maqableh came to Harrisonburg in 2015 to pursue his doctoral degree. In 2017, he graduated with a master's degree from the Center for Justice and Peacebuilding at Eastern Mennonite University. In the same year, he started his doctorate at the School of Strategic Leadership Studies at James Madison University. At the same time, he started to serve as a business adviser at the Shenandoah Valley Small Business Development Center. Jalal also teaches organizational behavior classes at the College of Business at JMU. Besides his affiliation with JMU as student, staff and faculty, Jalal serves on the board of directors of Fairfield Center and other advisory committees for the Harrisonburg Police Department and Harrisonburg City Public Schools. Contact Jalal at email@example.com