How Your Small Business Can Survive the Coronavirus and other short term economic crisis

Don't get emotional, this is business:


We've been here before after the local fires and floods and in 2009 with the great recession, it may be a slow recovery. The global economy ran super-hot for the last couple years and the correction won’t happen overnight.

Assume it’s going to get worse. 

Like you, your customers are also cutting their expenses. As bad as the last 3-4 weeks has been, you may not be at the bottom yet.

The secret to surviving a down economy is cash flow.

All of the following 15 tips work towards improving your balance sheet – you want to pay out cash later and receive cash sooner. There are 4 main ways to do this:

  • Reduce and slow down cash outflows.
  • Increase and speed up cash inflows.
  • Position your business for a recessionary environment.
  • Get your team to be more productive than they’ve ever been.
  • Apply for a loan, line of credit, or extra capital before you actually need it.

Let’s get started.

Keep better tabs on cash flow

We help simplify money management. Santa Barbara Cash Register has the solutions to keep you on top of your spending and also for extra capital.  Just ask for

I. Reduce and slow down outflows of cash.

The first step is to cut or reduce your monthly cash outflows (ie., expenses).

1. Reduce your monthly rent.

Call your landlord and negotiate a lower monthly rent. Sign a longer term lease in exchange for the lower rent if you have to. Your landlord is running a business too, and they would rather have you stay at a lower rent, than to have the space be vacant for months. Point out that it’s better for both of you if they lower your rent.

2. Get a discount on utilities.

Consider all your utilities like water, power, Internet, and phones. Call your vendors’ competitors and ask what kind of deal they can offer a small business looking to save money on their utilities. Let them know you’re willing to switch vendors if they can give you a big discount (even if it’s just for the first year). The frontline sales reps will often have unadvertised discounts they can offer new customers. All you have to do is ask for them. Once you know how much you can save by switching, call your current vendors. Get them to match the offer so you don’t actually have to go through the trouble of switching.

3. Cut wasteful discretionary spending.

These are the newspaper and magazine subscriptions that were a nice perk during the high-revenue years, but now nibble away at your bottom line. However, this does not meant cutting cheap but morale-boosting expenses like cake for birthdays. Right now you need your employees to rally around the company’s survival, and a cake a month to keep morale up is well worth it. In the same vein, productivity boosting expenses like the coffee machine or a well-stocked soda fridge are relatively small expenses where the benefits in employee productivity far outweigh the costs.

4. Lease rather than buy. (Or buy used.)

Need a new computer or office furniture? Lease it instead of buying. You will end up paying more in the long run, but in a down market, it’s all about cash flow. If your business runs out of cash in 6 months, it won’t matter that you paid less for that desk by paying the full amount up front. When survival is the issue at hand, you unfortunately won’t have the luxury of doing things the “optimal” way. It might also be worth the effort to find more options of getting your equipment and further. In this economy, there may be plenty of used gear from recently closed businesses.

5. Pay payables later.

Call your vendors and get better terms. For example, you may be able to get 45-day terms instead of 30-day terms. Having cash on hand for an extra 15 days may be crucial in your survival.

While you have your vendors on the phone, and especially if they won’t extend your terms, see if they will give you a small discount for paying early. 1-2% off for paying within 10 days is a typical example. Consider using a charge card to further extend your payables. For example, if you have 30-day terms with a supplier, you can effectively extend those terms to 90-days by paying that invoice on day 30 such as using an American Express PLUM card. The PLUM card gives you 60-day terms with no interest. By using the PLUM card instead of a check, you’ve basically given yourself 90-day terms to pay your suppliers — without incurring any interest charges.

II. Increase and speed up cash inflows.

After slicing your expenses and cash outflows, the next step is to increase and speed up the inflow of cash. Like many other businesses, you may be facing plunging revenues. Here are tips for turning that trend around.

6. Collect receivables sooner.

Get cash in hand by offering your customers a discount for paying sooner. A common discount is 1-2% off for paying within 10 days instead of the normal 30 days.

Tip: Make sure you’re only offering terms (basically, free credit) to your best customers. You’re not running a credit card company. Stop giving your customers free credit at the expense of your company’s survival. Also, be aggressive (but not predatory) in your collection. In flush times, it’s easy to let a customer slide on paying their invoices on time. But you don’t have the luxury of floating free credit to your customers any longer. If the customer is having trouble paying all their bills, you are probably competing with other collectors. Get to the front of the line by being the squeaky wheel. (It goes without saying that you should be friendly, courteous, and understanding while aggressively following up on receivables. You do want to keep their business, and using mafioso collection techniques won’t help that cause.)

7. Keep your existing customers.

Don’t cut so much of your business expenses that you can no longer service your customers. Now is the time to remind your customers why they chose you in the first place. If it’s because you’re the most cost-effective, remind your customers that your low prices are even more important during the recession. If you’re not the cheapest, but you offer a premier product or superior customer service, remind your customers of the exceptional value you offer — and that price may not be the most important factor when determining total cost of ownership.

8. Double-down on your best customers.

Most small businesses are seeing new business dry up. This slowdown in new business alone is bad enough for any small business owner, but the loss of your best customers (your biggest accounts) will be nothing short of catastrophic. Call, email, or send a card to your best customers. Tell them you appreciate their loyalty and continued patronage. Ask them to come to you if they have any concerns and are looking to jump ship. Let them know you’re willing to work with them to keep their business. Sign a long-term contract if the opportunity arises! Offer to buy them lunch or a cup of coffee to discuss your current and future relationship. It’s a lot harder to “fire” you when you’ve met face-to-face and they know you’re also concerned about their needs.

III. Position your business for the recession.

The business environment in a recession is very different from the good years.  Consumers spend differently, which forces you to adjust accordingly.  Here are tips for making those adjustments.

9. Lower inventory costs.

How much cash is tied up in inventory? Do you really need to have 100 units of every product sitting on your shelves, waiting for the big order? You may be able to reduce the amount of inventory you’re holding, and free up much needed cash. Can you increase the frequency of deliveries (and lower the size of each shipment) from your supplier? That will allow you to stock fewer units on the shelves and keep more cash in your accounts. While you’re considering your inventory, maybe now is the time to liquidate the worst selling products. Speaking of your product line…

10. Revamp your product line or marketing campaign.

Consumers spend differently in a recession. They want (need?) to get more value out of their purchases. Position yourself as a great value, and you’ll outlive the recession.

Note that “value” is not the same as “low price.”  It’s tempting to slash prices to drive more demand, but that’s not a sustainable practice.  Someone else will always be willing to lose more money by making deeper price cuts.  Make drastic price cutting the very last tactic you use.  Instead, change your marketing message to highlight your amazing value.

11. Look for opportunities to leapfrog competition.

Your competitors are in the same boat as you. If you can swing it, this is a perfect time to launch a new initiative, take market share from your rivals, and put yourself in a position to accelerate through the recovery. (Think of it like stepping on the gas to accelerate out of a turn.) Now is the time to up your business networking. Not only can you get advice from other business owners, but staying abreast of news and gossip gives you invaluable knowledge on what’s happening in your industry.

IV. Team productivity.

People are often the most expensive part of running a small business. Of course, employees are also the source of much of the value of your business. Slashing labor costs while boosting employee productivity is not easy to pull off.  However, businesses that manage it are the ones that will survive this recession.  Here’s how you can be one of those businesses.

12. Cut once, cut deep, and do it sooner than later.

Layoffs suck, but sometimes they’re essential to your company’s survival. If you do have to layoff employees, make sure you cut deep enough so you don’t have to do it again in 6 months. If you make a shallow cut and tell the remaining employees there may be more to come, everyone will be scared for their job.  A jittery team is not an effective team.

If you foresee layoffs coming in the near future, do it sooner rather than later. That conversation will be painful, but getting it over with soon has a couple of big benefits:

1) You can afford to offer a bigger severance package

2) The remaining employees can stop worrying and everyone can get back to working on turning the company around.

13. Reduce hours before reducing salaries.

If you cut someone’s salary by 10% but ask them to work the same number of hours, they will resent their lower hourly wage and will (subconsciously or otherwise) reduce their productivity by the same amount or more. A better idea is to cut hours. You’ll save the same amount of cash, but have a better chance of retaining the same level of productivity from your employees. Overtime pay is a good place to start — you’re paying 1.5x or 2x for those hours. Cutting your store hours (closing 30 minutes earlier) is another option that could mean one less employee you have to layoff. Customers may not even notice your new hours.

14. Cut your own salary.

You must cut (or even eliminate) your own salary before you cut your employees’ salaries. If they don’t see that you’re sacrificing more than they are, it won’t matter that you’ve saved 20% in employee salaries — you’ll see a 50% reduction in productivity. That means you’ll actually be paying more for those employees because of the reduced productivity.

15. Get everyone on the same page.

Be open with your employees. Cultivate an attitude of “we’re going to weather this downturn together.” Go ahead and show them the books (or at least an overview) so they can see that ugly chart of dwindling (or heaven forbid, negative) cashflow. Don’t be afraid to say “we all need to be 10% more efficient and 10% more productive (ie., make 10% more while spending 10% less), or else none of us will have a job in 6 months.” Just including them in the problem solving process is often enough to motivate them to give that extra effort during tough times.

Keeping your business afloat during the current economic condition is difficult, but not impossible. Have realistic goals and plan for being in survival mode for perhaps 2 or more years (not just the next few months). Cut deeper than you think you need to because it will be worse if you have to go through this process again in 6 months.