For months, many New Jersey small businesses were forced to close their doors or limit operations due to state guidelines associated with COVID-19, and the entire small business ecosystem continues to be affected as consumers stay home and limit discretionary spending. These orders had trickle-down effects for almost every industry.
For example, local dry cleaners have lost business as many people no longer go to the office and are wearing casual wardrobes instead. And the restaurant industry was hit particularly hard as customers were not able to dine at physical restaurant locations. Even as the economy reopens, restaurants have continued to limit their capacity. A decrease in travel and excess expenditures created a sharp decline in revenue for the hospitality industry. Simultaneously, these businesses continue to struggle with employees feeling comfortable coming to work due to health concerns. No small business was spared during this pandemic.
Fortunately, more than 151,000 New Jersey small businesses were able to secure temporary assistance through the U.S. Small Business Administration’s Paycheck Protection Program. While this was a crucial lifeline for many businesses, all small businesses need to take time to develop comprehensive plans in case of a second wave of closures, including how they can best continue to preserve capital, generate revenue and operate their business in a limited or virtual environment. In fact, businesses that are able to successfully pivot their operations can prepare themselves to emerge stronger after the pandemic.
In the meantime, small businesses should keep the several considerations in mind in case of a second wave of shutdowns and or future crises.
Develop a disaster or crisis plan that includes potential financial effects of COVID-19 shutdowns. According to the TD Bank Small Business Recovery Survey of 750 small businesses nationwide, 84 percent of small business owners in the Northeast – which includes New Jersey – did not have a crisis or disaster plan in place before the COVID-19 outbreak. If they haven’t already done so, small businesses should work with their accountant, financial advisor or CFO to calculate the financial impacts of the shutdowns and how the business would be affected should there be a 30-, 60- or 90-day interruption. Our survey also found that 69 percent of owners acknowledged they need to prioritize building stable financing and cash reserves, enhancing their business model flexibility and improving budgeting and accounting methods to cut costs to better prepare for future crises. All of these priorities should be included in the development of a disaster plan. In addition, this plan may need to include future financing needs, as 55 percent of Northeast small business owners reported they will seek funding in the next 12 months.
Consider ways to accelerate the business’ revenue cycle. In the current economic environment, having cash on hand is crucial in case of a future emergency or unforeseen circumstance. Toward that end, businesses should consider how they can accelerate their cash collections in case of future crises. Where possible, small business owners should try to accelerate the business’ revenue cycle using methods such as automated receivables; mobile check deposit (remote deposit capture); positive pay for checks or automated clearing house, which speeds up clearing time by matching payment information to a list of known payers; or a ‘smart safe’ that electronically counts cash deposits and credits a business’ account before the physical cash reaches the bank. Small business should also spend time evaluating where to cut expenses, including inventory orders for non-essentials, and work with suppliers to negotiate payment extensions where possible for accounts payable to trim spending as proactive measures.
Determine how the business can pivot its operations to enhance efficiency while ensuring consumer confidence. Despite challenges associated with the pandemic, Northeast SBOs were nimbler than those in the rest of the U.S. According to TD’s survey, 75 percent of small businesses made changes to their operations to adapt to the COVID-19 environment. Of the 75 percent, these small businesses implemented a variety of capabilities, including remote working (31 percent) and reduced hours of operation (33 percent). Those small businesses that haven’t thought about these issues should take time now to consider how things could be done differently or better in a future crisis.
Additionally, small businesses should consider how they can alter their operations to enhance efficiency and consumer confidence, whether through building out online capabilities or implementing mobile ordering, to complement their current revenue sources and create another avenue to enhance the business’ liquidity. Furthermore, 75 percent of small businesses reported accepting cash and check, making it the preferred method of collecting payments while just 28 percent use some type of point of sale system. Small businesses could take this opportunity to pivot their payment operations by implementing point of sale devices like contactless and cashless payment offerings, which not only provide sanitation benefits that enhance customer confidence, but also provide fast, convenient ways for customers to pay that limit face-to-face interaction.
The future for many small businesses is uncertain, especially in New Jersey, which has been ravaged by COVID-19. The top two challenges foreseen by Northeast small businesses challenges over the next 12 months were the health of the national and local economy (46 percent) and getting paid on time (29 percent). While we cannot predict the future, business owners should use their banker as a primary resource for financing ideas and solutions to optimize business plans and operations. By working with trusted professionals like a bank, accountant or attorney, business owners can gain insights that could help drive efficiencies and better long-term plans in case of a second wave of closures or future crises.
Mike Carbone is regional president, Metro PA/NJ, at TD Bank and Jay DesMarteau is head of commercial distribution at TD Bank.