The events of 2020 have been profoundly difficult for the small businesses that make up nearly half of the U.S. economy and two-thirds of U.S. jobs — and that bring vibrancy and creativity to our communities.
If you’re among thousands of small business owners who are struggling as we enter the new year, use these actionable “resolutions” to get your business back on track. You’ll be better positioned to overcome new challenges and leverage new opportunities in 2021.
1. Take steps now to ease your cash crunch.
- Businesses that had access to cash reserves fared better in 2020 than those that faced financial stress even before the pandemic hit. If 2020 has left your business financially strapped, take these steps now to shore up your finances:
- Review your cash flow: Before you can effectively address financial challenges, you have to understand your cash flow. Create a 2021 cash flow projection that uses best-, likely- and worst-case scenarios for revenue and expenses based on what you’ve learned in 2020. For example, a worst-case scenario would include business closures, if that scenario was relevant to your business in 2020.
If you’ve taken on new loans or renegotiated terms on outstanding debt recently, be sure that these terms are reflected in your new cash flow projections.
- Increase your liquidity: Essentially, liquidity refers to how quickly you can get cash for goods or services. In accounting terms, it also indicates how quickly or easily you can meet financial obligations with the liquid assets — typically, cash — available to you.
There are a few ways to increase your business’s liquidity. One is to reduce expenses to free up cash. For example, if you have excess inventory, see if you can find a bulk buyer. Ask for better terms from your suppliers and offer incentives for your customers to pay faster. If you have excess space, see if you can share, renegotiate or move to reduce overhead.
Another way is to generate new revenue. If, for example, you’ve been meaning to open an online store but are waiting until you have time to perfect your Shopify or Etsy skills, don’t wait. An imperfect store is still more profitable than nothing.
The third way is to secure safety net funds. Stay on top of any new COVID relief loan programs that are offered in 2021. These governmental programs are offering beneficial terms and the lowest rates currently available. You can also open a business credit card — just be sure to find the best terms available and only use it to build your credit, unless you absolutely must use it for business survival.
2. Get your financial records in order now.
No matter what industry you’re in, chances are that your management routines were thrown out the window this year. The good news is that you can get back on track pretty quickly:
- Ensure that you’re up-to-date with taxes and insurance payments that are due in 2020. A significant bill for either or both areas can be expensive not only in terms of what you owe, but also if penalties or other fees are added. The good news is that many local, state and federal agencies are offering various levels of reprieve from penalties, so contact your certified public accountant (CPA), tax preparer or bookkeeper and take steps now to alleviate any issues before the year ends.
- Be sure your business financials are up-to-date. Address any discrepancies between your bookkeeping software and bank records. Make copies of any documents that you’ll need for existing grants and loans, such as Paycheck Protection Program (PPP) forgiveness. And be sure you have digital and paper copies of your business financial documents you may need to secure new loans, such as cash-flow statements, financial projections and bank statements. If you’ve negotiated payment terms on existing loans with banks or with vendors, or lease terms with a landlord, make sure you have paper and digital copies of those documents as well.
In addition to helping you get a handle on your financials now, this step will ensure that you’re prepared to act quickly should a new round of business-relief funds become available in 2021.
3. Contact lenders to create a realistic plan to get back on track.
Lenders understand the challenges that small businesses faced in 2020 — as well as the double-whammy for business owners, who often used their draws to keep employees on board, pivot their offerings and otherwise to survive.
If your personal and/or business credit has taken a hit (or will soon), don’t despair. Instead, talk to your lenders, other creditors and vendors. Remember that they’d rather have you as a thriving client than a struggling business.
- Propose a plan to get back on track: In most cases, creditors are willing to work with proactive business owners that are facing short-term trouble. They may reduce interest rates, eliminate or refund fees or take other steps to help you get back on your feet. Just make sure you document all of your conversations and send follow-up emails thanking them for their time, outlining the conversation and agreed-upon steps.
- Run personal and business credit reports: See where you can repair the impacts of missed payments or other mishaps. Analyze and rank your outstanding debts from the most expensive to the least and create a strategy to maximize the impact of each payment you make or step you take.
Pursuit can help
Pursuit has decades of experience helping small business owners. We offer access to more than 15 loan programs and a range of additional services, and we’re committed to helping your small business get stronger today and thrive tomorrow.
To learn more about how we can help you, contact us today.