Businesses around the world are facing an uncertain future. While a small segment is thriving due to the downturn caused by COVID-19, most entrepreneurs and small business owners are facing a new reality of slashed sales and piled up expenses.
When we’re all in the thick of the current health and economic crisis, it can be hard to think about the future. The immediate need to just survive takes precedence over long-term planning.
But, right now is the most important time to start thinking about the future – both the next few months and the upcoming year. Now is the time to take action to save our businesses. As entrepreneurs and business owners, that’s what we have to do to succeed.
To start moving forward, follow these steps that are designed to not only save your business but potentially pivot it into a recession-proof success.
1. Assess your current situation and create a new forecast
The first thing you need to do is to make an honest assessment of where things are today and what you think the future will look like in 3 months, 6 months, and a year from now.
To get a real assessment of where things are, you should call your biggest customers to get a sense of what their future looks like. Are they planning on continuing to place orders? Are they going to pay for the orders that they’ve already placed with your business? Do they need more time pay, or could they pay for a portion of what they owe?
If you serve consumers directly, you probably already know your revised reality of what has happened to sales. Have they dropped 20%? 40%? Maybe more? Assuming sales have dropped, are you seeing sales continue to decline or are they starting to flatten out – in other words, do you think your business has found the bottom of the sales decline?
Start to think about what the future looks like for your customers. What is their buying power going to look like in the next few months? Is there a need for your products and services in the foreseeable future?
As you answer these questions, you should start working on a revised sales forecast. You’ll want to create a new sales forecast for the “new normal” where sales are down and take some time to recover. It’s worthwhile to create a few different scenarios for different potential recoveries.
Your sales forecast doesn’t need to be overly detailed. Just forecast your best guess at the major lines of business that you have and what you think the future looks like. Read our detailed guide for creating a sales forecast and download our free sales forecast template (there’s one for subscription businesses, too).
2. Develop a new business model
Now that you’ve created a new forecast, you’ll have a good sense of what parts of your business are going to survive and what parts are going to decline the most.
With that information in hand, now you need to explore how your business is going to pivot to survive. This might mean developing a new business model. A basic example is for a retail store to start selling online. A restaurant might start selling boxed meals for families to compete with traditional meal delivery services like BlueApron.
A critical part of this process is to involve your entire company. You want to solicit ideas from everyone, not just your leadership team. Your team that’s on the frontlines of the business may have some of the best ideas for what your customers need the most in a recession. The important thing is to be candid with your team and ask for any creative input.
You should also consider piggybacking off of industries that are thriving in this current recession:
- Collaboration tools for remote work
- Delivery services
- Grocery shopping
- Remote workforces and remote workforce management
- Certain categories of e-commerce
- Health and fitness
If your business can take advantage of trends that are growing while people shift to work from home, you may be able to find new lines of business that can sustain growth.
I recommend using a “lean business plan” format to explore different business ideas. This format helps you generate an entire business plan on one page in a format that’s easy to review and adjust. It’s perfect for sketching out business ideas to see if they’ll work. Learn how to create a lean business plan and download our free template.
3. Create a plan to maintain your business through the crisis
With a revised sales forecast and a plan for a new business model to face the current challenges, now you need to flesh out your financial projections, focusing on expenses and cash. This may be the most challenging as you think about what you need to cut and what you can keep as part of your new business model in the reality of an extremely challenging recession.
Of course, payroll is often one of the biggest expenses that any business has, and it’s likely that you’ll have to explore layoffs as part of your expense cutting plan. In addition to layoffs, consider salary cuts. You might be able to keep more staff on and find that employees are willing to take pay cuts rather than face potential layoffs.
Contact your biggest vendors and see if you can renegotiate any expenses or get better payment terms. Certain services and vendors might be critical to run your business. But, they may be willing to renegotiate. After all, they’d probably rather keep you as a customer instead of having to find a new customer.
As you plan your revised expense budget (download a free template here), you need to also think about cash. How can you make the cash you have last as long as possible? To run these numbers, you need to understand your cash burn rate and runway: how much cash you “burn” every month and how long that cash will last.
A cash flow forecast will also be key to understanding the future of your business. When are you going to be tight on cash and what can you do to ensure that you always have enough cash in the bank? You can download our cash flow template to help with your cash flow forecast. I also recommend checking out LivePlan for cash flow forecasting to simplify the process and get your forecast done faster.
If you need additional cash to help your business survive the downturn, take a close look at the SBA’s Economic Injury Disaster Loans and their Payroll Protection Program that can cover your payroll and other qualified expenses for 8 weeks.
4. Create a plan for recovery
As hard as it is to believe that the current downturn will end and that things will return to normal, you have to know that they will. The current health crisis and economic uncertainty will end.
That’s something you’re going to want to prepare for so that your business is ready the moment things start trending back up. You’ll want to think about what recovery scenarios look like. It may be a fast recovery or it could drag out, but either way, you’ll want to be prepared.
Think about what current long term initiatives you want to keep going so you can take advantage when things start bouncing back. Related to this, as you cut expenses, be careful not to cut so deep that it prevents you from capitalizing on the inevitable economic rebound.
Right now planning is critical
Now, more than ever, it’s important to take a deep breath and create financial plans for your business that will help it survive the current crisis. Managing based on knee-jerk reactions won’t help you navigate the current situation. Instead, focus on creating both short and long-range plans that can guide your business through these rough waters.