Every entrepreneur considers the downsides and risks before starting their business, but it's unlikely that many included a global pandemic in their worst-case scenarios. It will be years before the economic impact of COVID-19 is fully understood, but individual business owners can easily speak to the cash crunch it has caused.
A recently published survey by Main Street America research is suggesting that the pandemic could lead to the closure of almost 7.5 million small companies by year's end. The difference between those who survive and those who don't will likely come down to creativity and careful money management.
While news reports like this feel-good article from GMA praise the ingenuity of entrepreneurs who are discovering new revenue streams, the truth is that replacing lost revenue with new is not going to be enough for many businesses. Combining new cash streams with novel ways of cutting costs will likely be the best answer to surviving the coronavirus crisis. Here are a few suggestions for ways you may be able cut costs enough to end up compensating for lost revenue.
One of the biggest changes that COVID-19 has made in the employment landscape has been the acceptance of working from home. Where the idea of telecommuting was relatively novel prior to the pandemic, it has since become the norm for countless businesses, and while employees may have initially missed the camaraderie of the office, they have since grown to appreciate not having to commute, dress up for work, or pay for take-out lunches.
At the same time, where the inability to oversee employees may have been uncomfortable for you at first, you have also probably learned to trust that work will get done while at the same time realizing significant savings in rent, maintenance on office equipment, supplies cleaning services and more. If you've been finding that the job is getting done and your employees have recovered (or exceeded) their initial level of productivity and engagement, you may want to consider making remote work permanent.
If there was ever a time to try to use economies of scale, it's now. Purchasing for a small business that doesn't buy in large quantities means that you're never going to get the best pricing, so joining forces with others is just a smart purchasing strategy.
The most convenient way of doing this is to join a Group Purchasing Organization (GPO). A GPO will align your needs with those of others who are looking for the same services and products so that you can order in larger quantities and get better pricing. Finding a GPO is relatively easy, and in many cases, they are funded by the vendors rather than the members.
Long before the pandemic hit, tens of millions of people had already entered into the gig economy and were offering their services to companies large and small. These freelancers and independent contractors were often working from home and providing expert level work to companies that were happy to avoid the many costs of employee overhead. If you are simply unable to continue paying for benefits, workers' compensation, and other employee costs, then using these knowledgeable and talented individuals may provide you with a better way to keep your business running. Before leaping into using gig workers it is a good idea to do some research and understand your legal responsibilities.
It is remarkable how easily business owners lose track of expenses when things are going well, and how much they learn is being wasted when it's time for belt tightening. One good example of this is in the contracts and subscriptions you may still be paying for software and technology that you're no longer using. These expenses tend to be billed and paid monthly or annually, becoming relatively invisible from an accounts payable standpoint but not actually paying for anything that is being used. When you need to cut costs, it's a good idea to take a fine-toothed comb to your bills. You're likely to find that software you signed on for years ago is either no longer applicable, or even replaceable with something that costs less and provides more security and updated functionality.
When times are tough, it's easy to think that the best way to hold onto existing business is to drop your prices – and maybe you already did for a while. Still, the service or products that you are providing did not drop in quality, and at some point, you need to be brave and return to your original fees. If you're not sure how your clients will respond, you can test the theory by only doing it with a portion of your customers to see how they respond. For those who complain – or if you don't feel ready to change your prices just yet – you can at the least improve your cash flow by putting a late fee policy into place or enforcing one that you've always had but never actually imposed.
Small business owners all over the country are feeling financial pain in the face of the pandemic. Even if you can't increase revenue, reviewing, reconsidering, and reconfiguring your expenses can make a big difference.
About Martinez & Shanken, PLLC
Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services. Partners Deborah Martinez and Earl Shanken work to ensure your business accounting is done with integrity and to your satisfaction.
