COVID-19 Economic Crisis is a historical event in making!
In the future, this economic event of 2020 is going to be referred to alongside the great recession of 1932 and 2008. This will be always a case-study for how diseases and epidemics affect globally connected economies. COVID-19 crisis has certain unique differences from the previous global recessions. Whilst the 2008 crisis was triggered by the collapse of financial markets and spread globally in a viral manner. Today’s crisis is different in many ways. Supply shocks due to regulatory interventions such as mandatory stay-at-home, closure of workplaces & public health emergency have resulted in demand shrinkage. Supply chain disruption itself is the biggest threat to globalization.
In Canada, provincial governments have mandated the workplace and business closures for non-essential services. There are measures announced by the government such as generous Wage subsidy, tax deferrals and different credit facilities for businesses. Much of these measures are focused more on helping the workers. Small businesses, micro-businesses or entrepreneurs do have certain benefits available to them but whether these are sufficient or not, that’s debatable.
COVID-19 and the scale of economic crisis have posed a serious existential threat to many businesses especially micro-businesses, home-based businesses and other forms of small business. Our post is aimed at these businesses to outline some of the lessons which they can learn from this situation.
Prepare your Business Plan and follow through it
A business plan is a tool that is used by all the businesses to set a roadmap to achieve its goals. Traditionally, small businesses prepare business plans only when someone asks for it such as a lender or an investor. A properly written business plan takes into account a complete economic, industry and business analysis alongside a risk management strategy.
- Conduct thorough market research.
- Identify the risk factors and their implications for your business. Based on these risks, develop a risk management strategy.
- Put up a contingency plan
- Start using PESTEL analysis* – an often less focus component of a business plan to determine macro-environmental factors
- Pay closer attention to threats in SWOT analysis (Strengths, weaknesses, opportunities, and threats).
- Be realistic with your financial projections. Go easy on your assumptions!
- Review your business plan and update it on a regular basis.
*PESTEL stands for Political, economic, social, technological, environmental and legal.
We have seen that a lot of time entrepreneurs get confused between weaknesses and threats. If you are writing your business plan yourself, remember that weaknesses are internal and threats are external. If you do not have experience with business plan writing, you should not hesitate to seek professional help. Though COVID-19 is a kind of crisis, very few would have anticipated given today’s technological and medicinal advancements. It’s a good lesson for businesses to assess this risk and associated threats to businesses.
Ensure Online Presence – Sell Online too!
One of the biggest lessons learned from this COVID-19 crisis is businesses have to ensure online presence. Embrace the E-commerce model, be it delivery of goods or provision of services. Though we cannot say that E-commerce businesses are recession-proof but they are clearly winners in this crisis. E-commerce business has its own issues and complexities but adding it to your business model does provide an alternative to physical presence. E-commerce businesses are going to be in trend for a while now since everyone is going to jump, let technology companies not take advantage of you. Do your research and you really do not need to break the bank in order to build an e-commerce store.
Invest in Technological Resources of your Business
Stay-home orders or closure of physical locations emerged quicker than most of us would have anticipated at the onslaught of this contagion. Businesses having a lack of technology had a more severe impact than others.
- Plan and implement a CRM system (Customer relationship management).
- Start using cloud accounting systems as compared to old school desktop systems.
- A lot of online collaboration, project management, and service delivery tools are available.
- Pay closer attention to the security of your information systems. Hackers and fraudsters have already doubled up their attacks on websites and systems of otherwise unaware users.
- Make yourself aware of rules and regulations surrounding e-commerce and electronic communications.
You can plan smartly to get maximum out of technology within your budget. You do not have to overspend on your information systems.
Prepare your financial statements and implement a management reporting system
Small businesses such as entrepreneurs and micro-businesses limit their bookkeeping and accounting activities to prepare their year-end income tax returns. This is high time to start paying attention to your bookkeeping and have access to up-to-date financial information to ensure better planning and preparedness to unforeseeable circumstances. You need to have a professional accountant! Put up a management reporting system and review your financial information on a regular basis. You might not have been aware of all the tools available to you in your existing small business accounting software. Read the numbers, ask questions from your accountant and plan accordingly.
Re-organize your Business – Consider an Incorporation
Corporations have limited liability whereas un-incorporated businesses do not. The liability of the owner of an unincorporated business is unlimited which means in an event of default all the personal assets of sole proprietors or self-employed individuals are at stake. With dropping revenues, virtually to zero in some cases, fixed costs keep on incurring such as rents, utilities, and other bills. If it stays longer than expected this can be a one-way fast track to bankruptcy. Regardless of size, consider incorporating your business and protect your personal assets.
During the current crisis, certain small business owners operating through a corporate form of business are not happy about not being able to claim benefits announced by the government, such as Canada emergency response benefit aka CERB. With proper planning, you can create a mix of dividends and salary to withdraw from your corporation. (Update: April 6, 2020, if you withdraw non-eligible dividends from a CCPC, you might be eligible for CERB).
Ensure sufficient Working Capital to weather the storm
Working capital is extremely critical for any business success. No matter, how much you have invested in the Capital assets of your business, lack of enough working capital and cash can put it all at risk. Small businesses, in particular, do not plan and manage working capital while preparing their financial forecasts and projections. A lot of businesses are going to have their very existence at risk due to a lack of adequate working capital. Start focusing on working capital and management and planning.
Re-consider your supply chain
At the beginning of COVID-19, the North American industry (rather global) saw a serious disruption to the supply chain due to their dependence on Chinese manufacturing. This includes large-sized businesses as big as tech giant Apple and many other publicly traded companies.
This is high time to review your supply chain and identify alternatives to ensure that your supply chain is not affected in the future should such an event happens again.
Interested to join the discussion?
This post is meant to generate a general discussion which can be helpful for the small businesses and entrepreneurs trying to weather the storm of economic crisis. If you would like to join the discussion, please leave your comment on below Facebook post.
COVID-19 has affected many small businesses and entrepreneurs.
Read the below two posts:
1. Lessons small businesses…
Maroof HS CPA Professional Corporation is an Ontario CPA firm providing accounting services, business plan writing services, income tax services, and other business consultancy services. Get in touch with us.