With consumer spending forecast to drop significantly due to the effects of COVID-19, small businesses will need to find innovative ways to mitigate economic impact.
is no secret that small businesses power the U.S. economy. These companies create nearly 2 million jobs annually, employ up to 47% of the entire workforce and contributing 44% of the U.S. GDP. As the world faces the greatest health challenge ever seen, small businesses are encountering inconceivable economic catastrophe. To weather the times, these businesses will need to utilize smart operating strategies and demonstrate true resilience.
How COVID-19 is affecting small businesses
Bankruptcies rose 74% during the 2009 recession, leaving the vast majority of small businesses completely devastated. The coronavirus outbreak has changed how businesses will operate moving forward. Here are a few challenges business owners must consider.
Collapsing demand and access to liquidity
Demand for consumer products and business services has plunged tremendously due to the global effects of COVID-19 with consumer spending making up 70% of the U.S. economy and GDP forecasted to drop by 38% in Q2 of 2020. There will be many businesses that struggle to keep their doors open, striking similar comparison to the previous economic crisis where 1.8 million small business found themselves insolvent with more liabilities than assets between December 2008 and December 2010
When analyzing nearly 600,000 small businesses, the JP Morgan Chase Institute concluded that the average small business has about 27 days of operating cash reserves.
Editor's note: Nearly 62% of small business owners who participated in an online business.com survey in early April 2020 said their businesses had just two months or less before they went under in the current economic circumstances. Seventy-three percent of respondents said they had seen their revenues drop by more than 50%, and 43% had closed their businesses at least temporarily and had no incoming revenue at all.
With nearly 10% of consumers reporting to have already delayed a major purchase due to current events, and another 13% stating they plan to in the future, businesses will need to prepare for lower forecasts in revenue and effectively manage cash and assets.
Managing the work environment for safety and efficacy
The Occupational Safety and Health Act of 1970 assures safe and healthful working conditions for working people and authorizes enforcement of the standards that have been developed under the Act.
OSHA requires companies to provide each employee with a workplace that is free from recognized hazards that are likely to cause death or serious physical harm.
Most businesses currently do not have a solution in place to operate without close human proximity. For example, businesses in the manufacturing sector would be vulnerable as most factory floors are not currently designed with efficient social distancing measures in mind. Navigating the logistical issues of ensuring human safety while maintaining operational efficiency is critical.
Disruption in supply chain and managing inventory
Given that the world of commerce has become an interconnected global village, small businesses have begun relying solely on suppliers outside the country, to the point where supply chains have become increasingly complicated. For instance, a clothing company in America may manufacture its products domestically but continue to source raw materials from China.
Current events make what was once a seamless supply chain, a logistical nightmare. Coupled with the fact that access to capital is restricted, broken supply chains will be a large contributor to the 0.5% global GDP reduction in 2020.
The emotional well-being of employers and employees
Worry and feelings of anxiety regarding the global pandemic can be overwhelming. Measures to mitigate the spread of the coronavirus such as social distancing and self-isolation have also contributed to public angst. Small businesses will need to find ways to keep employees engaged and cope with the effects of the pandemic.
Approximately 32% of surveyed respondents in the U.S. stated mental health is one of their primary concerns about the COVID-19 pandemic with main worries surrounding family health, national economic stability, personal physical health, parent health and personal financial situation.
7 smart strategies to keep your business running
There are many resources available to create paths to solutions. Here are a few that every small business should be considering.
1. Utilize small business aid.
In early March 2020, the US government authorized $7 billion in disaster relief loans for small businesses affected by COVID-19.
This program aims to enable businesses that are operating in states with emergency declarations to borrow up to $2 million, repaying the balance over a 30-year period. The Senate has also approved a $480 billion relief plan that includes aid for small businesses.
The federal Paycheck Protection Program is another loan designed to mitigate the economic impact on companies with 500 employees or less. This two-year advance has an interest rate of 1% and gives businesses the option to borrow up to $10 million to continue paying their employees during the pandemic.
These drastic, yet necessary, measures are available to keep small businesses operational during a period of significant revenue decline.
2. Renegotiate contracts and debts.
In difficult economic times, business owners should look to reduce financial liability as much as possible. This can include requesting deferred rent payments, renegotiating vendor contracts and refinancing loans.
If possible, it may also be advantageous to request banks temporarily defer interest payments on outstanding debt. Considering that not all states have banned commercial evictions, small businesses still are liable by eviction law to be removed from their places of commerce. Increase your liquidity by applying for a government loan or getting extended credit. Communicating early and often to negotiate new terms on your financial obligations is a smart move to ensuring you keep your doors open.
3. Transition to remote work.
There are 28% more full-time employees working from home now as a result of COVID-19. Every business has been challenged to rethink labor strategy and implement new work processes. Telework is no longer seen as a benefit but essential. Remote working options have been linked to the following:
- Decreased stress levels
- Increased talent pools
- Reduced costs for employers
- Higher employee engagement
Over 75% of polled employees ranked collaboration as "very important" to a productive workplace, so ensuring that each person continues to feel connected to the mission of the business is essential. Many employees will now be working remotely for the first time which will contribute to the creation of a flexible working environment and greater peace of mind for individuals. Small business owners will need to assess what functions can be done remotely and ensure the proper structure is in place so that employees can be successful.
4. Provide employee resources to manage stress.
According to a Gallup study, daily stress amongst employees has increased from 48% to 65% amid the COVID-19 crisis. Every business should commit to helping their employees cope with stress. Since each person responds to stress differently, an employer should look to provide critical support resources such as these:
- Employee assistance program
- Mental health resources (online therapy, psychiatrists, meditation class, suicide hotlines)
- Casual virtual meetups
- One-on-one video calls with company leaders
- Self-care challenges
5. Explore private sector financing programs.
The government is not the sole source of financial aid during this time; many larger companies are also willing to provide aid to small businesses. Facebook, for instance, is offering a grant package worth $100 million to small businesses in a bid to keep businesses running. Bumble is another example, offering grants worth up to $5,000 for women-run small businesses. Searching for local and national private funding is a great way to discover additional financial support opportunities.
6. Concentrate on redeploying employee skills.
Human capital is typically the highest cost for businesses so eliminating staff to save money is one of the first considerations when there is economic trouble. The hospitality industry is expected to see a 45% reduction in its workforce, which amounts to roughly 1 million jobs.
Considering the cost of employee recruitment, engagement and retainment, every effort should be made to keep your team in place. While there are certain points where obvious cuts must be made to keep the business sustainable, a reduction in force should be a last resort.
By exhausting available resources such as the Paycheck Protection Program, businesses should strive to reallocate employee skills to other parts of the business instead of making immediate cuts. A talent assessment will reveal which employees offer the most value in a specific role and give insight on talents that can be repurposed for other jobs within the organization.
7. Fine-tune your marketing message.
In times of crisis, marketing should not stop; it should amplify. While many believe that consumers do not want to hear from businesses, this idea is simply not true.
While it is critical to ensure that you are getting the right message across, 77% of consumers said they want to see advertisements that explain how the brand is being helpful and providing value in such a challenging time.
Ensure that you clearly and consistently communicate with your consumers. Find ways to educate consumers and help them achieve their goals even if they cannot currently afford to purchase your product or service. Considering that global ad spend is down $20 billion in Q1 of 2020, fewer advertisers will be competing for ad space, giving small businesses that choose to advertise online more visibility at a reduced cost.
Surviving the challenge ahead will not be easy, but it is possible. Mitigate economic impact by using available funds, reallocate resources and strengthen your marketing message to speak to the present needs of your target customer. As with all things in business, focus first on serving others well to yield the greatest possible outcomes.