2020 was an unprecedented year for small businesses. We had the biggest drop in gross domestic product in U.S. history, followed by a boomerang of recovery.
With a potential 9%-10% boost in GDP and trillions of dollars of stimulus, coupled with what appears to be an effective vaccination program, we should be asking ourselves many questions: What’s next? What if the economy booms? What if your business booms? What if competitors hire your best employees?
We’ve identified eight post-COVID ideas for business owners to consider:
- First, do a financial gut check. Coming out of an illness, it’s always a good idea to get a physical. A financial gut check is like a physical for your small business. How much is the business making (cash flow)? Analyze your assets (what your business owns) and liabilities (what your business owes). Check in on taxes, legal matters and risk management as well. Have a good starting point.
- Next, lean up. Think about what’s next as the economy heats up and the world comes back from the pandemic but in a different form. Consider the “Clint Eastwood” approach:
1. The Good (status quo at a minimum, or revenue increase)
2. The Bad (revenue drops 10%-20%) and
3. The Ugly (revenue drops 25%-40%)
Being lean will be helpful in any of those scenarios. Consider the leaning process as an exercise in minimalism. What is superfluous and unnecessary? What is essential?
- Have dry powder. Who doesn’t like a good sale? The pandemic put many quality things on sale: people, assets and businesses. There is a vast amount of new money in the system. Having dry powder in the form of liquid assets allows you to buy low — whether assets for the business, investments or new hires. Consider your cash burn rate per period. How much do you want as a war chest in weeks/months? If you have a three-pronged budget (Good, Bad and Ugly), what is the burn rate in each scenario? Dry powder is important as we all navigate this transition out of COVID.
- Check credit lines. The response to the pandemic has been flooding the economy with money, and now the enormous stimulus may lead to higher interest rates from their current near-historic lows. Having access to debt will be important in the “what’s next” world. This could be the time to take on credit for more ample dry powder. Check your credit and lines of credit. Make sure all Paycheck Protection Program loans are in order and working toward forgiveness. Talk to your accountant about the Employee Retention Credit (ERC), a “hidden stimulus.”
- Manage large purchases. As the recovery progresses, there are cost increases brewing in raw materials. The Philly Fed reports a major increase in the prices paid on inputs. Steel, copper, construction materials and skilled labor are in short supply and costs are all going up. Think about potential acquisitions early and getting in line sooner than later. Similarly, there are disparities in supply and cost. Need microchips? Good luck. Steel? Take a Tums. On the other hand, assets related to pandemic business casualties might be useful.
- Competition. This is the time to fully assess your competition. Disruptive events like COVID are evolutionary — the strong typically survive and the weak don’t. Someone will make it through this — make sure it’s your business. Build a matrix of your competitors: Who they are, where they are, and what they are? Consider building a Strategy Canvas, like the kind in the Blue Ocean Strategy, to assess the competitive landscape. Who’s winning on price? Quality? Team? Who’s losing? In this recovery, there has never been so much access to digital information. Weaponize social media. Put Google alerts on your competition. Follow them on LinkedIn and Twitter. Look at their websites and teams. Who are their best players? Where are the chinks in the armor?
- Look for new ideas. What is the latest and greatest? Who is involved? What ideas or R&D got left behind in the pandemic? What companies went out of business, and did they have any tailings? What talent is out and about? Incubators? The pandemic changed a lot of things about how we do business; what new ideas can you take out of the pandemic that wouldn’t have occurred to you before?
- Finally, build and protect the team. We are going to see an explosion of hiring as the economy recovers, so take care of your A Team. Get a pulse on their happiness and pain points. What’s their “deal breaker?” It seems likely there will be a shortage of good people, so don’t take yours for granted. Does everyone know the late cycle plan, and your mission, vision and values?
Bottom line: We can say hindsight is 2020, but we should look forward and be asking, “What’s next?” Robert Shiller said, “Tough times never last, but tough people do.” How did your business navigate the unthinkable in 2020, and how are you preparing for the recovery?
LaBrecque is chief growth officer at Sequoia Financial Group.