Keeping a small business afloat in difficult economic times is challenging, and the coronavirus pandemic has definitely roiled the waters on which owners must sail. Unfortunately, there is no set playbook to follow to ride out the storm and right the ship. Every small business is different, and each carries its own risks and rewards. These differences make copying another company’s turnaround strategy to the letter unrealistic. Still, there are some general strategies business owners can follow to help them stop taking on water and start bailing themselves out.
Keeping a small business afloat in challenging times can be difficult, but extra attention to detail can help ensure that a business survives.
Because every small business is different, and each carries its own risks and rewards, there is no set playbook to follow for survival.
Some useful advice that applies across small businesses includes looking at the big picture, inventorying the staff, making sure the business has ready access to cash, sweating the small stuff, and avoiding a sacrifice of quality.
1. Look at the Big Picture
People have a tendency to attack the most obvious immediate problems with vigor and without hesitation. That’s understandable and might make good business sense in some situations. However, it is also advisable to step back and look at the big picture to see what is still working and what might need changing. It’s an opportunity to better comprehend the size and scope of existing problems and further understand your company’s business model—determining how its strengths and weaknesses come into play.
For example, suppose a small business owner discovers that two employees are consistently making mistakes with inventory that cause certain supplies to be overstocked or understocked. While an initial reaction might be to fire those employees, it could be wiser to examine whether the manager who hired and supervises them has properly trained them.
If the manager is to blame, that person could be fired, but this might not be the best approach. If the manager’s relationships with existing clientele have a history of bringing in repeat business and substantial revenue, they are likely someone you'd want to keep. Retraining might be a better alternative than termination.
By thoroughly scrutinizing the strengths and weaknesses of the employees, the owner is looking at the issue from a top-down perspective, reducing or eliminating the chance that the problems will recur while avoiding a change that could adversely impact future sales.
Fix a similar kind of lens on analyzing how your product or service fits into the marketplace now, how the economic crisis has affected your customers and suppliers, and all the other key aspects of your business. You need to know how well your business model fits the current environment and forecast what various alternative scenarios of the future might mean for it.
2. Inventory Your Staff
Payroll is often one of the top costs a small business owner has, so seeing to it that the money is well spent makes sense. This may involve a thorough review of the staff—both when a problem arises and during the normal course of business—to make sure the right people are on board and doing their jobs effectively.
Both small business owners and large corporations tend to be penny wise and pound foolish when they hire the least expensive workers. Sometimes the productivity of those workers may be suspect. Hiring one worker who costs 20% more than the average worker but works 40% more effectively makes sense, particularly during periods of crisis. By constantly seeking résumés and interviews from new people, business owners can make changes to staff when needed to increase efficiency.
Low salaries can be counterproductive if they result in indifferent productivity.
3. Ensure Access to Cash
Small business owners should take steps to ensure that the company has access to cash, particularly in periods of crisis. Visiting a bank loan officer and understanding what’s required to obtain a loan is a good first step, as is opening a line of credit in advance to fund possible short-term cash-flow problems. Establishing a good relationship with a banker is always useful for a small business. For example, business owners who had such relationships had an easier time accessing PPP loans during the COVID-19 pandemic.1
Small business owners should have other potential sources of capital lined up as well. This might include tapping into savings, liquidating stock holdings, or borrowing from family members. A small business owner must have access to capital or have a creative way to obtain funds to make it through lean times.
4. Start Sweating the Small Stuff
Although it is important to keep an eye on the big picture, a small business owner should not overlook smaller things that may have an adverse impact on the business. A large tree obstructing the public’s view of the business or the company’s signage, inadequate parking, lack of road/traffic access, and ineffective advertising are examples of small problems that can put a big dent in a business’ bottom line.
Considering and analyzing the numerous factors that bring customers in the door can help to identify some problems. Going through your quarterly expenses line by line may also help. Owners should not be checking for one-time expenses here, as those items were most likely necessary charges. Instead, they should look for small items that seem innocent but are actually draining the accounts.
For example, the cost of office supplies can quickly get out of hand if they are ordered improperly. Similarly, if your supplier increases product prices, you should consider looking around for a cheaper supplier.
5. Don’t Sacrifice Quality
Keeping a handle on costs is crucial in tough times. Owners need to stay on the offensive and get employees on board with changes that are being made. However, be cognizant of not sacrificing quality when making these product changes.
Business owners seeking to improve profit margins should be wary of making dramatic changes to key components. For example, if a pizzeria is going through a dry spell, the owner could seek to expand margins per pie by purchasing cheaper cheese or sauce ingredients. Note that the strategy could backfire if customers become dissatisfied with the taste of the pizza and sales decrease. The key is to make cost and other cuts that don’t compromise the quality of the finished product. Perhaps there is a way to cut the price of takeout boxes or paper napkins instead.