Overcoming small business financial hardships

As an entrepreneur, you may be feeling stressed and uncertain due to the challenges you are facing during the pandemic and recovery.

Despite struggling through unconventional working conditions, some businesses have made difficult decisions and have continued to thrive.

During this time of uncertainty, you can be proactive by creating an actionable plan to keep your business afloat.

What types of aid are available?

There are some options for support for small businesses that are struggling.

• Identify grants: Additional grants may be available to you for your small business, especially for small businesses that function in a way that benefits the public. If you’re new to the government funding process, grants.gov is a great place to start learning and exploring. The website offers federal grants to veteran-owned, women-owned, and specific types of businesses (e.g., region-specific, industry-specific). You can search for grants by category, eligibility, government agency, and more.
• Consider a Small Business Administration (SBA) loan: The SBA has opened Small Business Development Centers all over the U.S. to assist small businesses in locating funding opportunities, including bank and non-bank loans, as well as free financial counseling. SBA loans may process faster, have less associated paperwork, or include more favorable terms than traditional financing options.
• Find a COVID-specific loan: In response to COVID, many additional loan programs have been created uniquely for small businesses. Loans are giving individuals a leg up, so they can step back, assess their current challenges, and then move forward with intention. Visit sba.gov to learn more about current coronavirus relief options.
• Explore additional funding: While competition is fierce for government aid, keep an eye out for offers that may be relevant to you. A business owner who stays positive and consistently seeks growth opportunities is far more likely to stumble upon the right loan program, grant, or even mentorship.

Rising to the current challenge

Despite the current economic climate, new and established business owners can do many things to equip themselves for success in the present and feel empowered.

Determine the health of your business

To determine the health of your business, assess your financial documents, including cash flow statements, income statements, and balance sheets. 

Review your cash flow statements, income statements, and balance sheets. Your cash flow statements will give you a glimpse into how you are spending your money between operations, investing, and financing, and will reveal how much you spend daily to stay afloat.

Compare your current income statement to those of past years. To do this, review your net income, gross profit, and the cost of providing your products and services. Reviewing your balance sheet will also give you a snapshot of your financials. It can also help you calculate how fast you move inventory, pay off debt, and process customer payments. 

Obtain credit for your business

As an entrepreneur, it is critical to begin fortifying your relationship with your bank. Simply having an account does not guarantee the bank will approve you for credit—nor does it ensure understanding and flexibility in an emergency. If you already have a business account with a bank, start meeting regularly with your bank’s financial advisor. With an advisor’s support, you are more likely to be approved for credit, even if your financial statements aren’t rock solid. Compare what different banks offer and see who meets your unique needs.

Build your business credit

Building strong credit is fundamental to a successful business.

The factors that influence your credit score are your payment history, debt-to-income ratio, length of credit history, type of credit used, and new credit inquiries. Among these elements, your payment history is most important to the lender.

To begin building good credit, increase your monthly debt payments above the minimum amount due, if possible. Finding ways to increase revenue can also improve your debt-to-income ratio. If you haven’t already, open a business credit card and start using it for small purchases. Make it a practice to monitor your credit reports and be sure to make all business-related payments from your business bank account.

Preparing your business for the future

Our current economic climate is both unpredictable and fast-moving. Above all else, businesses need to be adaptable to stay relevant. Let’s explore some simple ways to adapt to changes in both your industry and the economy, both now and in the future.

• Diversify revenue streams: Put yourself in your customer’s shoes. What do they need right now? Are there additional products or services you can offer without an overwhelming investment of time or money? Challenge yourself or your team to come up with ideas for boosting revenue.
• Build industry partnership: In times of economic upheaval, networking may be the last thing on your mind, but reaching out to potential partners with complementary products or services may raise both your exposure to new markets and revenue in the long run.
• Create a more conservative budget: Businesses must continually assess whether it is time to invest and innovate or conserve and cut back. To tighten your budget, examine the ROI (return on investment) on any current marketing efforts, and discontinue what’s not working. Review inventory orders, overhead expenses, and your account.
• Innovate based on customer feedback: Innovation tends to feel like a risk. But when you make changes according to customers’ recurring input, you can trust that the results will be positive. What are your customers always asking about? What feedback has been provided by your customers?

Getting back on your feet

If your business is currently struggling or slowly recovering from the pandemic shutdown, consider the following steps to get your business back on its feet.

• Reframe products and services: Reframe products and services to adapt to customers’ current concerns. If business is slow, it isn’t that your customers don’t care. Instead, their priorities may have shifted since the pandemic began. Brainstorm how you can appeal to these priorities and meet their needs in a new way.
• Consider crowdfunding: Test a new idea or simply reach out for support from your community. Those who appreciate your business will be happy to help as you rebuild.
• Shift to remote work teams: Shift to remote work teams to save money and potentially boost productivity. Stanford University’s work-from-home study showed a 13% productivity boost in employees who made the switch. If your team worked remotely for much of 2020, discuss the merits of returning to the office versus staying remote.
• Create a three-month recovery plan: Rather than trying to carry on business as usual, address challenges directly. Draft a three-month plan with a timeline detailing what needs to happen and when.
• Use technology to connect with customers digitally: If your business has not historically been tech-savvy, now may be the time to change that. The pandemic has shown the importance of being able to operate remotely at a moment’s notice. How can you reach customers more effectively through email, apps, social media, your website, or other digital avenues?
• Create a self-care routine: Employ stress reduction techniques and tools to help you shift into a more positive mindset. Creating a self-care routine can impact your business in roundabout ways that might surprise you. The health of any business reflects the health of its owners and team members. Remember that even if things are hard, change is always just around the corner.

Key points

There are ways to help support your business during unprecedented times. Here are some key points to keep in mind.

1. It’s okay to need a helping hand. Small businesses are moving through a period of unprecedented economic upheaval.
2. Look for support. While government aid is limited, additional support resources are becoming available to small businesses.
3. Be proactive. Business owners who are proactive in reviewing their finances and building relationships with financial institutions will prevail.
4. Think outside the box. Getting back on your feet may require thinking outside the box to adapt to changing customer needs.

Next steps

Now that you understand the state of small business and how you can thrive in challenging times, it is time to take action.

• Make a list. Make a list of potential aid resources and learn how to apply.
• Do your research. Search government grants that may be available to you.
• Gather documents. Gather your financial documents and schedule a time to review them.
• Keep your documents safe. Keep your financial documents in a secure location and take time to properly review all of your documents.
• Review feedback. Review customer feedback and select two feasible changes to implement.
• Make a plan. Write out a strategic plan of action for the next 3–6 months to prepare your business for uncertain times.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.

Article written by EVERFI