Protecting Your Small Business’s Finances During and After Reopening

by Carson Lappetito

Many Arizona small-business owners faced a crisis during the quarantine. They could manage an economic downturn, but a full stop to their business was not sustainable. For the companies that survived into July, the challenges remain as COVID-19 continues to make its way through Arizona communities.

As of July 2nd, the state’s government was rolling back some of the restrictions for businesses to reopen. Governor Ducey ordered the closure of bars, movie theaters, gyms and water parks in an effort to slow down the number of coronavirus cases. For other businesses, social distancing and sanitization rules remain; however, employees are returning for work.

During these uncertain times, Arizona small-business owners should take some time to evaluate their company’s prospects in the “new normal.” They should embark on such a review only after they’ve put in place the best practices for keeping employees and customers safe. Once the basic safeguards are met, owners should turn their attention to the finance side.

Estimating Uncertain Revenues

Challenges remain for all types of small businesses, especially as virus cases surge. Many customers are staying at home, even with restrictions lifted. Small-business owners entering reopened economies must shift their delivery or service models to cater to new customer demands. They should also consider remote work opportunities as well as developing new ways to protect and serve customers.

Small-business owners can now develop revenue models. They won’t be perfect, but at least they offer guidance on the company’s prospects. The model should include a review of inventory, cash flows, accounts payable and payroll against likely revenue. Supplier and partner arrangements deserve special attention during this period. Did some of these partners go out of business? Owners need to understand how much money they are owed along with the likely odds for receiving full or even partial payment.

Cost cutting must occur to balance falling and uncertain revenue flows. Owners need to look at every line item and delete unnecessary costs such as nonessential inventory, old equipment or office space. For staffing, now is the time to openly discuss the future with the team. Owners who engage with staff with transparency and empathy will take less branding hits than those who fire staff or cut hours without warning or explanation. As local Arizona economies recover, small businesses that acted appropriately during the crisis will attract the best talent that’s eager to return to work.

A financial prospects model can also include some “sentiment analysis.” Owners should talk to other business leaders and work together to gauge the overall customer attitudes. Is there a consensus found? If the group feels, for example, a full recovery will take until later in Q2 of 2021 as opposed to the winter of 2020, what are the implications for one’s individual business? Build several forecast models based on optimistic and more pessimistic outcomes in terms of customer activity and the virus’s spread.

Rely on Government Aid

If a small-business financial model points to immediate or long-term trouble, then governmental aid might provide a lifeline.

While building a financial model for the business, the business owner can also investigate the options for governmental help. The Arizona Chamber of Commerce offers a number of resources, including grant information and other resources designed to help small businesses navigate economic downturn.

The well-known Paycheck Protection Program (PPP) sent hundreds of billions of dollars in funds in two rounds, and was extended into the fall due to an overwhelming amount of interest. It now features an extended forgiveness or covered period through the end of 2020. Arizona small-business owners should strongly consider the program, as it’s offered with no fees and provides much-needed relief for salary payments.

Re-examine a Pivot

During the early stages of the pandemic, alcohol companies made hand sanitizer and T-shirt companies produced millions of masks. These were great examples of companies big and small coming to the aid of communities, but in many cases they were not long-term business models.

There’s now a shift away from “pivoting” to considering a place in the “new normal.” This means examining how changing customer behaviors will adjust small-business operations, from restaurant ordering to retail stores sales options. Understanding how these shifts will impact the bottom line will help small-business owners to decide if they should “stay the course” or even close temporarily until demand returns.

Arizona small-business owners who managed the lockdowns should move into a reset mode. They’ve weathered the major storm, but they now need to gauge their entire business health, accounting for financial health, any available government aid and the changing customer needs.

Carson Lappetito is president of Sunwest Bank.

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