The COVID-19 pandemic has led to the permanent closure of an estimated 100,000 small businesses, and the statistics show the pandemic is far from over. While we've all waited eagerly for a post-pandemic world, it seems that the new normal has arrived.
While businesses across the company have reopened – many at limited capacity – it has become clear the pandemic isn't going to just go away. A second wave could take some of us right back to square one, so it's important for you to have a small business disaster continuity plan in case of another coronavirus-related company shutdown.
New cases of COVID-19 are on the rise amidst a staggered reopening.
At the time of this writing, national statistics for new COVID-19 cases suggest we're far from out of the woods. The U.S. as a whole is still regularly surpassing 60,000 or 70,000 new cases per day. Of course, not every state has been hit equally hard. California, Florida, Texas and New York lead the way in confirmed cases, and the discovery of new cases remains near 10,000 per day in all but New York.
These numbers suggest that some states could return to the mandatory business closures we saw in Q1 and Q2 – even as many nonessential businesses have yet to reopen. If that's the case, small business owners need to prepare now.
A recent Chamber of Commerce and MetLife survey found that most small business owners are looking ahead. Of those that closed their doors earlier this year because of the pandemic, 69% have reopened. Despite the modest economic recovery, 65% of these business owners are concerned they will have to close again due to a possible second wave of the novel coronavirus – many of them indicating that their second closure could be permanent. However, 31% of small business owners haven't taken any steps to prepare for a second closure. Of those who don't anticipate a second wave of COVID-19, 45% have made no preparations for a second closure.
But the threat of a second wave is very real, so small business owners must prepare to navigate a second round of closures. To hope for the best does not mean neglecting to prepare for the worst.
In the first round of business closures, cash on hand became a determining factor in how long a business could survive. Adaptability and flexibility were also key, as many businesses pivoted to remain operational in a social distancing environment. While some of the measures below were already implemented by most businesses during the first company shutdown, preparing for a second shutdown could leave you better positioned to survive the pandemic for the long haul.
1. Build and save cash reserves.
When cash flow is interrupted, your cash reserves are there to support your business. Many small businesses found they only had enough cash on hand to float two weeks of expenses during the first company shutdown. In anticipation of another wave of COVID-19 business closures, grow your cash reserves any way you can.
"[Business owners] should work to collect accounts in order to aggressively build cash," said Ted Sheppe, executive vice president of commercial banking at Axiom Bank. "They should hang on to that built-up cash reserve, [and] they should seek deferrals from landlords, banks and suppliers."
2. Cut extraneous expenses.
Many small businesses are already operating as lean as possible out of necessity. However, if there is any "fat" left in the budget, now is the time to trim it. Also, develop a contingency plan for going into company shutdown mode. What does your weekly or monthly budget look like if you suspend operations? How much cash would you need to cover your weekly expenses in this scenario?
"Prioritizing spending based on critical need is another way to keep cash on hand," said Ryan Irby, partner and financial advisor at CPA firm Weaver. "Some business leaders are negotiating to stretch payables for as long as possible without alienating vendors, while others are running inventory down to minimum quantities. Because of the critical times we're in, business could also consider modifying employee incentives and bonus plans."
3. Apply for available relief funds.
Just as many small businesses took advantage of relief measures like the U.S. Small Business Administration's Economic Injury Disaster Loan and the Paycheck Protection Program, continue to look for available relief funds. These programs are available through your local, state, and federal governments as well as private companies and nonprofit organizations. If you believe you are eligible for a relief program, apply for it. Every dollar counts, especially if you need to enforce a second company shutdown.
4. Develop and grow new revenue streams.
If your business was lucky enough to develop an alternative revenue stream during the pandemic, consider investing in the growth of that new direction. For others who have not yet found an alternative source of income, it's time to think creatively. What do your customers need right now, and how could you fill that need? How does this dovetail with your existing products and services? Your brand already has an audience; you just need to pivot to meet them where they are right now.
"Many companies have found new revenue streams, including online sales," Sheppe said. "For restaurants and other retailers, it was switching to takeout and/or curbside point of sales. Perfecting these sales processes in anticipation of another closure is prudent. Be creative and think outside the box in order to find new ways to bring in revenue."
5. Maintain remote work capabilities.
Remote work became a hallmark of the pandemic for businesses. For those that could remain operational at a distance, this has been a major benefit. If your business shifted to a remote-first approach to work during the pandemic, consider making those policies permanent. If your shift to remote work was fraught with challenge, assess what went wrong and try to improve upon those mistakes.
"Most businesses experienced some form of shift to online and remote operations during the first weeks and months of the pandemic," said Carolyn Parent, CEO of LiveSafe. "The time is now to evaluate what worked and what you need to improve in terms of online business and remote work. Put those plans and systems in place now. That is an investment that may very well make the difference between maintaining continuity of operations or shutting down completely."
6. Communicate with your employees and customers.
Finally, it remains as pivotal as ever that you keep everyone – your employees and customers alike – fully apprised of your plans and expectations during the COVID-19 pandemic. Not only is it important for your business to keep everyone informed, but your customers and employees are looking to your brand for support at an uncertain and difficult time. Offer that support in a direct and easily understood way.
"All businesses, regardless of size, should have a disaster and business continuity plan in place, along with a crisis team that is ready to put that plan into action," Parent said. "The most important aspect of making all of this happen effectively is communication. Businesses must plan to communicate often with their employees and their customers on a regular basis."
Whatever your unique situation, it is critical to develop a contingency plan. Even if second-wave business closures don't materialize in your state, you will be well positioned for any other unforeseen crises, such as natural disasters or social upheaval.
What is COVID-19's impact on small businesses?
From the start of the pandemic, it was clear COVID-19 would adversely impact small business, in many cases forcing entrepreneurs to close their doors for good.
A business.com survey conducted at the end of March, when the COVID-19 pandemic was first causing economic shutdowns across the country, found that 37% of respondents' businesses would be unable to survive the pandemic for less than a month without any assistance, while an additional 24% said they could only survive for two months without assistance.
A survey of 5,800 businesses published in the Proceedings of the National Academy of Sciences of the U.S. found that one of the biggest obstacles to successfully navigating the pandemic was cash flow. The median company surveyed with monthly expenses greater than $10,000 only had enough cash on hand to survive two weeks without any revenue or assistance, the survey found. Cash on hand directly correlated to a company's optimism regarding its ability to survive the pandemic.
The PNAS survey also found that most businesses expected the closures to last until mid-June. While some businesses have reopened, many remain shuttered at the start of August. Others still have already made the determination to close their businesses permanently.
How many businesses have closed due to COVID-19?
While it can be hard to calculate the exact toll of these closures, it's clear businesses are being hit hard. An estimated 100,000 small businesses have reportedly shut their doors for good.
Some industries are being hit harder than others. For example, in the restaurant industry, where operating margins tend to be razor thin even in normal times, nearly 16,000 bars and restaurants have already permanently closed.
Small businesses employ two-thirds of the American workforce. COVID-19 closures are responsible for mass layoffs and furloughs, resulting in an unprecedented spike in unemployment claims. In February 2020, 6.2 million Americans filed for unemployment; by May 2020, that number surpassed 20 million. As of June, the unemployment rate was 11.1%, according to the Bureau of Labor Statistics, which means roughly 18 million people remained unemployed despite the passage of the stimulus legislation known as the Coronavirus Aid Relief and Economic Stability (CARES) Act.
Prepare for future COVID-19 closures and other crises.
If the COVID-19 pandemic has taught us one thing, it's that small businesses must expect the unexpected; this preparation could be the difference between surviving and closing your business permanently. Even if you expect your state might escape a second wave of COVID-19 and an associated company shutdown, a contingency plan can help you survive and thrive during any unexpected crisis to come. Remember the old adage: "It's better to have it and not need it than to need it and not have it."
In 2020, we've learned the significance of a small business disaster continuity plan. Don't be caught without one should things take a turn for the worse.