Life has changed for everyone around the world after the announcement made on March 11th, 2020, by the World Health Organization declaring that the Covid-19 virus outbreak as a pandemic and ever since, everything has not been like before.
Schools shut down, businesses started working from home, entrepreneurs, and founders of small/start-up businesses are struggling to survive during these crises.
There is so much information coming in daily that small or start-up businesses are experiencing significant impacts regardless of how established they are, having to relook on how to operate and manage their businesses.
It has become really challenging for these businesses to maintain their financial status during the lockdown period. All credit goes to less income coming to the businesses and the global financial uncertainty that’s taking place.
Unfortunately, the impact of the lockdown on start-ups and small businesses is way harsher in comparison to big businesses as they have smaller margins for managing sudden crises.
Therefore, start-ups and small business entrepreneurs will need to be mindful of the mentioned aspects and adapt to a new set of rules in order to survive the lockdown impact caused by Covid-19.
The following are the aspects entrepreneurs need to be mindful of.
Tracking the spending versus income status.
During this period, businesses need to conduct an actual test for their fixed and variable spending as well as their incomes. This way, the test will give them a clearer picture of where their company stands financially and what they need to do further.
This will also help the entrepreneurs plan ahead for future similar crises and how to manage in such an unsettled market. The strategy can also be implemented even when the pandemic effect settles.
Checking how useful the business model is.
Keeping in mind that the market is continuously changing every while (to the worse), it is essential to relook at the business model to know where the business is standing in terms of the assumptions made by the business owner concerning the incomes and spends.
This is also a necessary time to be tracking the current financial units and the cash flow. It is also essential to be mindful of what the runway looks like; business owners need to keep track of the impact on their new sales, collections, and future bad debts, if any.
Planning of new policies for next 3 months/ 9 months/ 18 months.
It is difficult to know how long this epidemic will go on for; it is imperative to be prepared for all scenarios. For instance, if the pandemic stays for 3-months, variable expenses such as hiring, marketing, and travel need to be instantly paused as it will help the business owner.
However, if the crisis keeps going for 9 months to a year, entrepreneurs will have to remodel their business strategy to cut on the variable spends, renegotiate fixed expenses such as rent employees’ salaries and necessary equipment, and focus more on only the essentials needed to survive.
It may be a good idea to relook at the sales strategy, such as selling online against direct selling. Business owners need to analyze whether they require cutting back costs or putting more money into marketing their business.
Whereas if the pandemic continues over 18 months or more, than some serious reconsiderations would be required, businesses will need to have a new strategy, will need to communicate, and act up on it with concern.
They would need to have a revision of sales income goals and product timelines as well as a new plan to operate. In that case, the business owners and their managers will have to keep their communication as transparent as they can with their employees and customers in order to gain trust and loyalty.
Patience in securing investments.
Every business requires capital to run, and the question that crosses the mind of every entrepreneur or business owner in these challenging times is where they will get the capital to run the business.
According to a survey conducted by PNAS, they surveyed more than 5,800 small businesses from March 28th to April 4th, 2020.
The timing helped them understand the expectations of the business owners at this time when both the progression of Covid-19 and the government’s response were uncertain.
The results of the survey showed that the pandemic caused a gap among small businesses. Results also highlighted the fragility of the financial status of many of the businesses. This survey helped in understanding the economic impact of the COVID-19 on the small business and start-ups ecosystem.
Business owners need to ask themselves the following questions in order to survive:
What is the burn rate and runway?
Should check how much cash is spent each month, how much of it goes to fixed spending such as rent, and how much goes towards variable spends such as salaries, commissions, travel, supplies &, etc.
Looking at the expenditure of each month, then subtract the rest of the spending to see if much is remaining and cut cost the ones that are not necessary.
What is the new business model?
Since everything has changed in the world, businesses should consider changing their business model of every to stay up to date with what’s happening. Businesses need to soon test the assumptions about costumers and revenue.
In conclusion, the survival ratio for start-ups and small businesses is quite fragile and will only work if the business owners take the right steps and make the right moves at the proper time.
Entrepreneurs should take the information coming to them seriously and take what’s relevant to their business. Keeping in mind that things will take some time until they get back to normal or at least close to normal. Small businesses or start-ups business owners and leaders should learn from this pandemic lockdown and always have a plan B for such a crisis in the future to be able to survive.