It seemed like the world was ending for small businesses last year when the pandemic began. Many businesses had to close down for good. Some had to rely on loans and government grants. Some had to shift to other businesses types to be able to survive. But, as the economy started to recover and as vaccinations started to roll, small businesses got back on track.
According to the Q2 2021 Small Business Index by the MetLife and U.S. Chamber of Commerce, 65% of small businesses believed that brighter days are coming. Many believed that given the vaccination, the lifting of restrictions, and the industry reopening, the worst is almost over.
But, it wasn’t that easy. What should small businesses learn from this pandemic about handling their finances?
No choice but to cut cost
It was something no one expected. With the social distancing orders from the government, people had to stay indoors. Work shifted to the remote setup. School adjusted to online learning.
It seemed like life stopped, business operations included. Many small businesses had to declare bankruptcy, as their finances could not support operations given the revenue loss.
In Yelp’s August 2020 Economic Impact Report, some 163,735 businesses have closed, while 97,966 declared permanent closures. These came from the industries of the food truck, men’s clothing, gift shops, and breakfast and brunch restaurants.
Those who could still afford to operate had to adjust. Shops and stores had to close down, given that customers could not operate. Some packed up their stores and went online. They set up their website or used social media to establish their online store. Others, meanwhile, changed their business line and came up with other products or services that were easier to sell given the pandemic situation. All those small businesses who survived, though, had a hard time cutting their costs.
According to a study conducted by experts from MIT Sloan School of Management, as early as March 2020, revenues and personal consumption of small businesses dropped around 40%. Small businesses had to cut down on costs during the onset of a pandemic. According to the study, even those businesses who weren’t much affected had to cost cut on travel, personal services, entertainment, and food after the pandemic was officially announced.
The study found that the CARES Act and the Paycheck Protection Program by the government to assist were effective in helping small businesses survive. There may have been issues with the distribution but it somehow kept the businesses afloat amid the crisis. Experts emphasized how fragile small businesses are, and that not everyone has the emergency fund that they need.
The major takeaways from this pandemic
Coming from these experiences, small businesses are now advised to take their finances seriously even at the beginning of their operations. Handling finances can help businesses prepare for emergencies apart from a pandemic.
Here are some ways you can improve the finances of your business:
Avoid unnecessary costs so you wouldn’t have to pay for controllable disasters
You can prevent legal costs if you follow building codes, fire codes, and other state-implemented laws where you can be fined for not following. You can also avoid paying penalties if you will have your SWPPP plan and have it inspected once a year, as required by your city. You can also avoid being sued and paying for legal costs if you make sure policies are strictly being implemented and followed within your business.
Keep a portion of your revenues
Experts interviewed by Forbes advised keeping at least 10% to 30% of yearly revenue in the bank. This is equal to three to six months of expenses that you can use should there be an emergency like this again. This does not only about a pandemic but other unavoidable events as well. Save up for emergency use.
Regularly review your budget and your expenses
You can do it on a monthly, quarterly, and yearly basis. Keep track of how your budget goes side by side with your operations, and if the goal is being achieved. See if you are hitting your targets. If not, reevaluate your processes and see why you are overspending instead of earning. Through this, you get to oversee not only your finances but also your entire business flow.
You’ll never know when another pandemic will happen again. You’ll never know when an emergency happens within your business. You might as well prepare by limiting your costs and improving your operations. The goal is to hit your financial targets, even when an emergency occurs. Here’s to hoping no pandemic will ever stop the industry again in the future.