The COVID-19 pandemic has caused chaos throughout the US economy and has threatened the future of many businesses. Owners, CEOs, and executive teams are scrambling to navigate this unprecedented period of uncertainty. As businesses begin to reopen, companies must implement survival strategies to weather a potentially lengthy recovery and potential effects from recurrences of the pandemic.
Here are steps business owners can follow when determining where to focus their attention, to maximize their chance of survival.
Survive by Cost Cutting
Preserving cash and limiting expenses are most important in an economic downturn. The future cash flow of a business is uncertain during an economic shutdown. Cutting nonessential costs will better position businesses to survive the pandemic. Understanding how your business is spending cash is the first step to developing a plan to reduce, defer, or eliminate expenses.
Analyze Past Expenses
- Perform trend analysis of your expenses year over year
- Analyze how variable expenses have changed compared with revenue
- Identify costs that are higher than expected and understand what is driving the increase
Involve Your Employees
- Encourage discussions within business units to determine how to reduce costs
- Seek feedback from workers who may have practical cost-cutting ideas
- Cultivate a team-oriented strategy to minimize waste
Implement a Plan
- Implement company-wide initiatives to reduce costs
- Set targets for the cost-cutting efforts
- Offer incentives for business units to meet their goals
- Analyze expenses before and after implementation
- Scrutinize “Miscellaneous Expense” accounts
- Seek employee feedback and adjust the plan as necessary
Cost cutting in the short term is a mechanism for surviving the pandemic, but the long-term benefits will bring additional value to your company. Inefficient cash and expense management increases financial risks from any future economic downturns.
Recover with Targeted Marketing
Marketing through a financial downturn is critical to a company’s future growth. Customer outreach is crucial to rekindling relationships and recovering lost revenue. It is often difficult to pinpoint the source of revenue loss when a company has many customers and diverse offerings. Incremental decreases in weekly orders may cloud a business owner’s visibility into the cause of the loss. Coordination of financial analytics and a marketing strategy will maximize revenue recovery and future growth prospects.
Identify Key Customer Targets
- Analyze historical revenue per customer and per product
- Quantify and extrapolate the losses per customer and per product
- Identify which customers or products are critical to recovery
Strengthen Current Customer Relationships
- Reach out to key customers with personalized emails and phone calls
- Acknowledge the pandemic and show appreciation and care for their specific situation
- Offer ways to help each other through the situation and reassure them of the value you bring to the relationship
Prospect for New Customer Relationships
- Focus marketing efforts on products that suffered the most considerable loss
- Target new customers by expanding marketing strategy to new geographies
- Continue to send marketing materials to lost customers in the event their business turns around
It is difficult to determine how severely the pandemic is impacting each of your customers. Personalized customer outreach will remind your customers that you care about them and that your relationship is mutually beneficial. While customer outreach may not generate increased revenues immediately, it will strengthen customer relationships, driving future growth beyond the pandemic.
Stabilize Reopening with Scenario Planning
Budgeting and planning are often time-consuming tasks even when not in a pandemic. Now more than ever, it is essential to develop a strategy for the next 6-18 months to better prepare for reopening. The uncertainty of the pandemic makes creating reasonable forecasts even more difficult. Creating a post-coronavirus budget may require more collaboration within executive teams than was needed in the past.
Calculate the Pandemic’s Impact
- Analyze how current YTD performance differs from your budget
- Identify the key contracts or projects that have been canceled or delayed by the pandemic
- Monitor expenses and losses related to the COVID-19 pandemic
Create a Pandemic-Adjusted Budget
- Extrapolate the impact of the pandemic through your budgeted period
- Delay revenues associated with delayed contracts and estimate the effect on new business estimates
- Estimate the impact of cost cutting and targeted marketing plans on future performance
Analyze Multiple Scenarios
- Prepare a multi-scenario budget for the reopening of the economy and possible recurrence of the virus:
- How long will it take for business to return to prior levels after reopening?
- How will the timing of different states’ reopening impact business?
- What if reopening too soon triggers a new outbreak?
- What if a second wave of coronavirus hits next year?
- Stress-test your balance sheet under different scenarios to understand your liquidity
- Monitor the economy and track performance against different scenario budgets
It is difficult to predict what the future holds. Business owners can prepare for the uncertainty with thoughtful and detailed scenario analysis. As states begin to lift restrictions, the most successful businesses will be those that prepared.
There is a lot of uncertainty surrounding the pandemic and the lasting impact of the economic shutdown. Business owners that respond through a focused approach are more likely to survive the pandemic. PCE has experience advising clients through the Great Recession and understands how best to steer a business through these uncertain times and recovery. Contact us today for more information.