With the vaccination rate climbing and states announcing reopening procedures, businesses can now start planning for what normal business operations will look like in the future. After a year of operating in uncertainty and focusing on preserving cash, the changes to the business arena now provide opportunities for business growth that we must seriously consider.
Getting back into “growth mode” isn’t as simple as setting aside your COVID-19 procedures though. You’ll need to get your business and workforce in a place where you can afford to take on the costs of expanding and growing.
The effects of COVID relief funds
Your relief funding helped your business stay alive. While you had to continue paying your bills (rent, utilities, payroll, and more) while dealing with significantly lower revenues, relief funding allowed you to keep paying these bills while operating at a loss. In the eyes of investors and lenders, however, your business still generated losses.
The losses suffered in 2020 are reflected on your balance sheet as a decline in equity. For many businesses, the result of the past year has been negative equity. This means that your business has used up any and all investment and profits it’s made in the past and is now surviving on debt (in many cases, relief-focused debt).
If you’re looking to raise funding from an investor, this might be a challenge. To an investor, it’s a sign that it will be a long time before your business has earned enough profits to start paying them back. If you’re looking for a loan, a lender may also see this as a challenge, because if you default on your loan they stand little to no chance of getting paid back.
To get your business in the best possible position to move forward with your growth plans, you’ll want to focus not only on returning to profitability, but also carefully setting aside enough capital to rebuild your business’s equity. Pick a timeframe: whether it’s one year or two years, and divide-out how much you would need in order to recover your business from being underwater.
Accessing business funding
After the economy returns to a more normal state, many investors and lenders will operate somewhat differently than they had in the past. Most lenders will likely be wary of the borrowers in their portfolio that might not have enough assets to cover the outstanding balances on their loans. With that, these lenders may be more inclined to approve loans for businesses that have a quick pathway to positive cash flow and those that have decent collateral attached to the loan application.
Investors have been sitting on the sidelines during the COVID-19 crisis. There are many who will be eager to put their capital to use once the economy becomes normalized, but they will be very cautious about getting involved in projects that have fewer investor protections or are more speculative in nature.
When choosing funding for projects during the recovery, consider that your deals are going to be structured differently. With fewer options for investors and more perceived risk, you might need to accept a lower valuation (meaning investors take a larger share of your business).
Similarly, business loans that were previously underwritten relying more heavily on projections may now be evaluated with more of a focus on outside cash flow (any money you might be making from other businesses or through other personal sources of income), the amount of the business’s lease, and the availability of collateral.
Reviewing the capacity of your workforce
In early 2020, when lockdowns and a general slowdown in business set in, many businesses focused on making their payroll more efficient. Some businesses were able to carry out their core processes with a smaller workforce, saving on payroll costs and keeping the business lean.
That business model works well for saving money, but it’s not necessarily the most effective model for when your business decides to grow. Businesses with growth in mind need a scalable workforce: one in which additional workloads can be handled by the current workforce, and that the business can easily add to the workforce as demand grows.
If your business is focused on saving money, use the utilization rate of your staff as a key metric. This measures each employee’s potential output versus their actual output in a period of time (output could mean how many products they make or how many customers they serve).
When your business is trying to save money, you’ll try to maximize your utilization rate. If your business is focused on growth, you’ll keep a close eye on your labor as a percent of sales. When you minimize your business’s labor as a percent of sales, you give your business the leeway to onboard many new customers and handle their orders efficiently.
When you look at your labor in this light, you’ll want to make sure first that your workforce can handle a lot of demand, and second that new workers can quickly be added in order to meet future increases in demand.
Setting goals for business growth
It goes without saying that goalsetting in general will help your business, but here are two concrete goals that every business owner should set for themselves when planning to transition from “survival” to “growth”:
- Set financial goals to have a positive equity balance, reduce debt, and achieve a stable profit. Set a deadline for achieving these goals that’s somewhere between 12 to 24 months out.
- Determine what your near-term growth plans are for the next five years, and determine how you plan to fund them.
With these goals in mind, you can begin to work towards achieving the objectives you had when you went into business in the first place.
Need a funding boost? Talk to Pursuit
Whether you’re ready to grow now or are planning for future growth, you can find a funding solution with Pursuit. We offer more than 15 business loan programs that will support your goals now and in the future. Contact us today to get started.