How Owners and Entrepreneurs Can Deal With Financial Stress
Millions of Americans have been left unemployed over the past half-year and are subsequently struggling to cover their bills and keep a roof over their heads. And for business owners, the situation is even more precarious. Unfortunately, despite fewer (if any) customers coming through the doors, businesses still have overhead that needs to be covered. Even those able to move some operations online likely still have had to contend with rent, utility and insurance costs and other financial obligations.
Additionally, some businesses may be obliged to cover the costs of supplier contracts even though they may not be able to use the items. For example, according to Reuters, the international clothing store Primark has committed to pay its suppliers $461 million for orders, despite all of its stores closing their doors in March.
Even though there have been provisions for businesses to defer payments, once they start trading again, these payments will need to be made. All of this adds up to a massive amount of financial stress for any business.
The Signs of Financial Stress
There are a number of signs of financial stress, and many of these have been exacerbated by economic shutdowns. These include:
- Poor Cashflow. Since many businesses have been forced to close, this essentially shuts off the flow of cash through their doors. All businesses experience periodic dips when cash is tight, but when there is no money being generated on-site, your business is bound to feel financial stress.
- High-Interest Debt. Many lending institutions are wary of the viability of businesses, particularly new enterprises. This means that your business may have high-interest debt. Although the CARES Act allows for deferring payments and holds on interest charges, you will need to make up these payments once the crisis has ended.
- High Outstanding Receivables. There are lots of enterprises under a financial strain, so it's possible that your outstanding receivable amounts have gone increasingly higher. While you may be accustomed to receiving payments from your customers within 30 days, you may now be expected to wait far longer. The chances are that your customers have also shut their doors, so they are not in a position to pay their outstanding debts.
Managing Other People Amid Financial Stress
In addition to dealing with the financial pressures, you will also need to ensure that you are managing your team. Whether you have had to furlough staff or have made arrangements for them to work from home, you will need to maintain a working relationship, so you can call them back once things start to return to normal.
There are a number of strategies to manage other people during this period of financial stress. These include:
- Increasing Team Meetings. It is important to stay connected, so it's a good idea to maintain the same number of meetings or increase the frequency of communication. Contact does not need to be overly formal, but a quick one-on-one communication will reassure your team members that you’re still here.
- Try to Organize Face Time. Since face-to-face meetings are a challenge during the current crisis, it's a good idea to try to organize face time through video conferencing. Even if your team members cannot be on video, try to be yourself so they can feel more easily connected.
- Understand the Challenges for Work at Home Employees. While you may want everything to continue as normal, you need to appreciate that your team members have challenges working from home. Your team members may be trying to work without a dedicated workspace or be juggling their childcare responsibilities. Try to make accommodations that will help them to work around these challenges. For example, you may allow them to stagger shorter shifts.
- Support a Positive Business Culture. Business culture is not defined by four walls, so encourage social conversation and interactions and make sure that your people feel like they still matter.
- Pay Attention to Productivity Changes. Finally, don’t ignore any unexplainable changes in productivity. These changes may be a signal of a problem that could be solved with your team. It may also highlight that your employee needs additional support.
How to Identify The Necessary Adjustments
There is no doubt this is a challenging time. In fact, according to the Business West Chamber of Commerce in the UK, just 16 percent of the businesses questioned believe they can cope should these circumstances last for more than six months. That's why it's crucial that you can identify the necessary adjustments you should perform. This should include:
- Tracking Your Expenses. Conduct a proper evaluation of your fixed and variable expenses. You can then compare this against your revenue status. This will provide a clear picture of where you stand financially and aid you in planning ahead.
- Check the Feasibility of Your Business Model. Considering the changing market, you should reassess where your business stands and whether your business model is still feasible. You will need to evaluate the impact of your revenues and costs and whether there are new sales, credit cycles and bad debts.
- Evaluate Your Future Policies. Since it will be difficult to estimate how long the current conditions will last, you need to evaluate and adjust your policies for the next month-, three-months and year-long periods.
Most SMEs appreciate that the market is never stagnant, so they are often prepared to make adjustments to plans. However, the current situation has highlighted the importance of identifying where you can make changes now.
Strategies to Deal With Financial Stress
Fortunately, there are some strategies to help you to deal with financial stress:
Get Your Budget Straight. While you may have had a very efficient budget in the past, it may not be applicable now. Look at your expenses and where you can make changes. Remember that if you can transition some or all of your team to working from home, you will have different expenses, such as video-conferencing software and other communication tools. Take an honest assessment of your budget and make the necessary adjustments.
Secure Access to Cash. Liquidity can make the difference between a small business weathering this current crisis and folding. According to the Small Business Administration, only half of small businesses will still be trading after five years. There are significant overheads that can leave very little liquid cash, particularly in the early years. So to ensure that your business or enterprise can continue to operate, you need continued access to cash. This may be accomplished by streamlining your costs or securing finance.
Explore Aid Options. The Senate passed a $2 trillion rescue package to help businesses and workers, and Congress is negotiating additional stimulus as we speak. Explore what aid options are still available to you. Not all businesses are eligible for help, and you will need to agree to the government terms. However, these aid options could provide the relief you need to tide you over. Even something as basic as deferring loan payments under the CARES Act could free up crucial capital that can keep your business afloat.
It seems like no business is immune to present economic conditions, as even global companies have lost a significant percentage of their turnover. According to Visual Capitalist data, the Disney Corporation has lost 31 percent in its value, while Delta Airlines has dropped from a value of $37.5 billion to $17.8 billion.
So it is crucial for SMEs to take action to deal with this financial stress and weather the current economic storm. There is no point in sticking your head in the sand. Now is the time to take an honest look at your business to work out where you can make changes to streamline your operation.