3 Steps to Getting Your Small Business Back on Track
Starting in March of 2020, businesses of every size and industry were forced to slow down, pause production and hiring, and close altogether as the COVID-19 pandemic forced shelter-in-place ordinances and strict social distancing protocols. While the severity of closings varied state to state and fluctuated as the pandemic progressed (and digressed), small businesses showed incredible ingenuity, from moving brick-and-mortar businesses completely online to, in some cases, coming up with entirely new business models.
Restaurants have turned to takeout and selling grocery provisions (including, thank goodness, toilet paper) and transformed parking lots into al fresco dining spaces. Retailers have restructured to offer curbside ordering and turned to social media to do live events like Q&A sessions. Some businesses even started making new products, such as distilleries pivoting to make hand sanitizer and clothing retailers sewing masks.
Other businesses decided it was best to close down entirely and use the time to create a Plan B. It was estimated that 35.7 million Americans who work for a small business were at risk of unemployment as of April, and 20.5 million Americans were confirmed unemployed as of May. And an estimated 100,000 businesses have permanently shut their doors to date.
Regardless of whether COVID-19 or completely unrelated factors have forced you to slow down or stop operations, if you find yourself in a position where you need to get back on track, consider the below advice on how to get started.
1. Determine Needed Funding for Your Small Business
For most small businesses, cash flow is the major issue, with nearly 50% of small business owners experiencing reduced customer demand, according to a National Small Business Association survey conducted in March.
The first step to getting back on track is determining the size of your cash flow issue. Take a look at your financial statements and see just how far you are behind on your year-end goals, as well as where you stand compared to last year. Only when you know the damage can you come up with a solution to move forward.
If you completely shuttered your doors and lost inventory, factor in the amount of capital you’ll need to get up and running. Will you need to invest additional time? If you laid off employees, what will you need to do to get them back? If you paused advertising, how much do you need to get your lead pipeline flowing? If opening back up means enforcing a new social distancing protocol, that will likely come with its own costs, whether it’s in the form of training, sanitation products, PPE materials, or something more significant like expanding your store’s square footage. With many customers spending more time online—and likely to do so for the foreseeable future—you may find increasing your online ad budget provides a solid ROI if you were spending a bulk of your marketing dollars on offline advertising.
2. Adjust Business Goals
With an idea of where your business currently stands and how much money you need to get back on track, you’ll want to adjust your year-end goals accordingly. Depending on your business and whether or not you closed your doors for a period, will dictate the need to adjust your year-end goals, and by how much.
Set realistic goals based on the adjustments you plan to make as well as on your local climate. Some companies are taking a wait-and-see approach as the situation continuously evolves. You can certainly take this approach, but consider evaluating month-to-month so you’re not completely caught off guard by where you stand and what you need to do to close the gap as much as possible.
If you’re an entrepreneur, you likely already know the value in being flexible as a business. Just as states are taking a phased approach to reopening, treat the rebuilding of your small business as a phased approach.
3. Explore Your Financial Options
How much funding you need could determine the options you decide to pursue. At the very least, Harvard Business School Working Knowledge recommends asking your landlord for rent extensions and your bank to defer interest.
The CARES Act, signed into law March 27, 2020, contains more than $3.75 billion in relief for workers and small businesses. Through the Small Business Administration (SBA), the new legislation established several ways to receive funding.
The act enabled the SBA to begin processing Economic Injury Disaster Loan Emergency Advance (EIDL) applications that were in its queue. This loan is designed to provide up to $10,000 to businesses, and, because it does not have to be repaid, is effectively a grant.
Other special programs include the Paycheck Protection Program (PPP) providing loan forgiveness for retaining employees, the SBA Express Bridge Loans for businesses that already have a relationship with an SBA Express Lender, and SBA Debt Relief for businesses that already have certain types of SBA loans. But funding for all these programs is limited.
While you can still apply for other small business loans, the thought of taking on more debt when so much is still unknown isn’t appealing to everyone.
If you’re a small business owner and a homeowner, you also have the option of using your home equity to fund your small business. But note that there are several drastically different ways to go about this.
Home equity loans are an option, but still requires monthly payments and accrues interest. A home equity investment offers a unique way to access home equity without the monthly payments or interest. As an investment, rather than a loan, it allows you to access cash now in exchange for a share of the future value of your home without a loan. If your small business doesn’t come with a standard W2, you may also find this route preferable, as the application process is often more streamlined than a bank loan.
Weigh your options carefully, as there is no one-size-fits-all solution. As with any major decision, you want to consider the pros and cons with an eye toward downstream impacts. Use your business’s current financial situation, as well as its projected financial situation, to find the option or options that are best for you and your business.
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The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal or business circumstances and goals, consult with a licensed advisor.
Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.