This is the second in an ongoing series of posts aimed at small to medium-size business owners navigating COVID-19. Our aim is to post actionable advice that builds to a “Toolkit” of information to help you navigate the “new normal” business climate.
Health concerns are at the top of everyone’s list these days, but as a business owner, the health and future of your business is most likely a close second. As you watch local businesses shutter, or as your business has possibly shuttered, what does it mean? How bad could things get for your business, your local business community and the nation at large?
Tuning in to nonstop news cycles certainly isn’t the answer to coping in today’s Coronavirus (COVID-19) climate. But neither is denial.
First off, if a recession does come, it won’t be our nation’s first. And it probably won’t be the last. We’ve made it through tough economic times before, and if history is any indicator, we’ll get through this, as well. Fear and uncertainty can get the best of us if we let them. The key is step back, gain a bit of perspective, then assemble some actionable steps to moving forward during a slowdown, or even a recession.
What is an economic slowdown — and what’s it mean for your SMB?
Let’s begin with a definition of Gross Domestic Product. GDP is a measure of value of the total production in a country over a given year. It’s an important indicator of how healthy the economy is.
An economic slowdown occurs when the GDP slows but does not decline. This means there’s a decrease in the production levels of goods and services, such as dropping from 3% to 2%.
Slowdowns aren’t the same as recessions, but one typically leads to the other. Being in a recession is defined as a period of declining economic performance across an entire economy that lasts for several months. It’s specific enough that the National Bureau of Economic Research must look at data and make the determination that we are technically in a recession.
Signs of a slowdown
Is the slowdown already here? Here’s what to look for:
- Long periods of inactivity in major sectors, such as travel, tourism, hospitality, entertainment, retail and housing
- Rising unemployment and debt
- Fewer investors and consumer confidence in the market
- Disruptions to the supply chain
- Changing interest rates
Prepare your business
Just saying the word ‘recession’ can strike fear into the hearts of a community. But moving forward with a plan can allay the paralysis we often succumb to in times like these.
Know your finances
Start with a current picture of your business. Don’t guess; assess how much you can afford to lose. Finance Fundamentals can help you map out all the essentials. Here are a few tips to get you started:
- Know what drives the most value: Look at your profits and losses and try to find a balance between what costs the least but brings in the most revenue.
- Look at what competitors are doing in the short-term: If the neighborhood bakery is staying open, maybe your restaurant wants to cut back on desserts and capitalize on another area with less competitors, like to-go sandwiches.
- Pay attention to financial metrics: Look at success indicators for your business and industry and focus your time on the products and services you offer that are more of a need, not a luxury, to keep profits coming in.
- Consider a line of credit: Small businesses may want to look into a HELOC or research the SBA in times of need. This might help you keep business afloat while helping customers. Remember to make payments as your profits steady.
- Get a grasp of your inventory: Which are your most costly items, what’s essential, and what has an expiration date. Factor that into your losses or gains as you decide what to purchase and what to forgo.
- Shorten your list of services: If hair dye is a large proportional expense to your salon, stick to haircuts.
- Re-evaluable priorities: This is probably not the time to expand your business or take on any unnecessary debt.
Prepare your people
If big changes are on the horizon for your business, keeping your employees in the loop is not only the compassionate thing to do, but it may also keep them loyal to you once things turn around.
Ease concerns and retain employees
Communicate with employees and involve them in charting a path forward; this can help keep them engaged and ease anxiety over pending change.
As you communicate, set clear expectations of what’s to come: Reduced hours, cancelled meetings or conferences, and remote work. Be understanding and ask what they’re concerned about: School cancellations, making payments on bills, etc.
Be as flexible as you can with new schedules and explain what policies, pay and benefits will be available.
If you work with family, or solo, navigating these waters might be tricky. Here are some tips:
- Take time to listen: Since you likely know family members well, pay attention not only to what they say, but their body language. Are they crossing their arms, defensive over impending changes? Maybe they’re looking tired from lack of sleep. Try to have honest conversation about what’s going on in the economy, your community and your business to reduce worry.
- Show concern: Be open and invite feedback from your family or mentors. They care about you, so return the favor by problem solving together. You may not know what your new normal will be, but you can provide encouragement and discuss options.
Prepare yourself for the reality that relationships might change during this time. Whether customers or employees, people will vary in their response to how you handle the situation. Try to assure them and move forward together, if possible.
A brief history of economic turmoil — and what we can learn from it
Lessons from past recessions and slowdowns
Slowdowns offer warnings for where the next downturn might come from and reminds policymakers to remain on guard and flexible about shifts in the economy. These warnings spur governmental safeguards like many of the incentives Congress is currently reviewing.
See the bigger picture. Experts can’t predict everything: Some say recession is imminent, some that it’s impossible. Small business owners should try to save money for emergencies, if possible, and keep an eye on trusted sources like the Centers for Disease Control and Prevention and World Health Organization for up-to-date virus assessments.
Some money saving tips that are never too late to start:
- Drive organic traffic, improve word of mouth and cut back on extraneous marketing costs. Now might not be the best time to pay for a major logo change or extra signage. Save the money and use the extra time to think about where your marketing dollar can go farthest.
- Cut unnecessary costs. Though employees may enjoy free food or coffee, it’s much more important to make sure everyone has a job than a snack. If you have a lot of extra space to heat or cool, try working from home to save your electric bill.
- Use open-source software alternatives. It’s easy to throw money at software companies for licensure and updates, but you should check online for open-source software alternatives before you take out your wallet.
Find ways to stay relevant. Try changing up your marketing or researching interesting ideas you could blog about. Whatever you spend time on, try to relate it back to customers and keep them invested in your business — mentally, for now, and financially in the future.
Ways to engage customers from afar:
- Offer discounts for online purchases
- Promote gift certificates to be used after the pandemic
- Keep customers updated with emails and social posts — try to provide a mix of information to show you care (like how you’re giving back to the community) and humor to brighten this time
- Stream or video chat your products and services — a restaurant could stream a video of the owner trying new recipes at home
- The ideas above, such as open-source software and video streams, can help your small business take things in a new direction. To know which ideas are best for your unique situation, look at places your business could improve. Are you using outdated technology that’s causing slower deliveries than the business next door? Is your business bogged down by long processes and a tight budget? In either scenario, and many others, you can take simple steps:
- Identify the frustration or what needs to be improved.
- Has it happened more than once? If not, then you’ll have to solve differently.
- Write down the result you want. For example, "Instead of X, I want Y."
Small businesses can often move faster than large companies. There’s less red tape and office politics to get around before making change. Check your inventory, vendors and technology for places you could work smarter, faster or better. For example, innovation for your business might mean moving employees to G Suite, thus improving communication speed. It could mean hosting bi-weekly brainstorming sessions to find additional ways to help customers — such as a clothing store deciding to offer styling appointments.
What is current data telling us?
Given that no one really knows how long the current situation will be our new normal, conserving in any way possible can be the best course of action. Coronavirus (COVID-19) has affected economies on the local and national level. Just how much, we may not know for sure until the Coronavirus passes. But here’s what the data is telling us right now:
USA Today cites a conversation with Marko Zandi, a chief economist at Moody’s Analytics. He expects the U.S. economic output to fall 1.6% at an annual rate in the first quarter, and 2.5% in the second quarter before beginning a slow recovery in the second half of the year that picks up steam in 2021.
Meanwhile, Morgan Stanley forecasts a 4% contraction in the second quarter.
Keep an eye on the Bureau of Labor Statistics to release March’s data, including the unemployment rate and price indexes.
In response to a slowing economy, President Trump has spelled out details of a $1 trillion economic package that would help both consumers and businesses. As the virus continues impact citizens, President Trump is ramping up the production of medical supplies and plans to send two military hospital ships to New York and California.
As with the economy, we will have to wait to see if — and how quickly — the President’s plans will take effect. As of this publication, President Trump’s relief package includes: $250 billion in checks mailed April 6th to American tax payers, and again on May 18th, dependent upon income and family size.
For small businesses, his plan would “extend loans to small businesses equaling six weeks of their payroll up to $1,540 per employee, on the condition that the companies must keep paying their employees for eight weeks after receiving the loan.”
Another positive: USA Today claims “the economy is on far more solid footing than it was during the Great Recession of 2007-09, which lasted 18 months and caused nearly 9 million job losses. Household debt as a share of GDP is at historically low levels, down from record highs during the previous downturn. And Americans are saving about 8% of their income vs. just 3.6% in late 2007.”
Where does that leave the nation today?
The U.S. Chamber of Commerce is pushing government leaders to provide relief to businesses and workers. Their recommendations:
- Advocate for immediate unemployment benefits for those who are displaced from their jobs and lack income to make ends meet
- Support a tax credit to help businesses continue to pay people even if they can’t be on the job due to quarantines, closings or limited operations
- Call for low- to no-interest business loans to cover lost revenue as a result of the outbreak
Treasury Secretary Steven Mnuchin doesn't think the Coronavirus will cause a recession, but we can’t be certain of anything until we know how long the virus will affect our country.
Mnuchin says, “I think we are in the second inning of nine innings. And we will use whatever tools we need to make sure the economy and hard-working Americans get through this.”
Plan for the economic upturn
With the policy steps from the U.S. Chamber of Commerce, above, many believe there’s hope of lowering the economic impact of the Coronavirus. Your business may be best poised to reenter a post-Coronavirus world if you keep your focus on the following things:
- Be adaptable, save money where you can and innovate. Measures taken during downtime can help your business run more cost effectively in the future. Maybe your restaurant will realize customers love a simple menu of only sandwiches, so you permanently cut baked goods and pizza from your menu.
- Reward employees that have been able to stick with you. You may see, on the other side of this crisis, that they are more engaged and involved in the success of the business. Keep those open lines of communication to boost morale and share exciting future plans.
- Support other businesses when you can. Supporting businesses supports other workers and improves the overall quality of life in your community.
Right now, focus on what’s under your control. Take extra time to plan how you want your business to look in a post-Coronavirus world.
The information provided in this blog does not, and is not intended to, constitute legal or financial advice.
Toolkit: Coronavirus (COVID-19)
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Economic and loan information:
- Quick Take: Coronavirus' Economic Impact
- SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by COVID
- These financial moves can help you prepare for a recession
SMB resources for success:
- How To Make The Most Of Your Marketing Dollars
- Why Adaptability Is Key To Your Business's Success
- Innovation Is Vital For Small Businesses -- Here's How To Do It
- How Big Companies Can Innovate Like Small Startups
Updates from the nation:
- How bad will a coronavirus-triggered downturn be?
- Trump Seeks $500 Billion in Checks for Taxpayers
- What China’s Economic Data Says About a U.S. Recovery
- Despite forecasting economic slowdown, coronavirus won't cause recession
More trusted resources:
- Small town econ dev tool
- U.S. economy grinds to near halt at end of 2015
- The Most Important Least-Noticed Economic Event of the Decade
- Recession or Slowdown? Why You Should Care About the Difference
- Ten ways HR can prepare for an economic downturn