The Importance of a Solid Business Foundation

SCORE completed a follow-up survey of pre-startups and startups in June 2020 about how Covid-19 has affected their businesses.  This data is from a SCORE survey conducted from May 27 – June 10, 2020. 664 business owners responded with 196 respondents identified as thinking of starting a business or in their first year of business ownership. I reported in this column several weeks ago that this group of businesses were also surveyed in April 2020.  Here is a summary of the follow-up results.

More startups have received outside financial help than government aid in the past three months:

  • 32% have received delays for existing loan payments as of June, up from 10% of startups in April.
  • 25% have received new loans as of June, up from 7% of startups in April.
  • 20% have received improved payment terms from vendors as of June, up from 5% of startups in April.
  • 19% have received support from crowdfunding or other community requests as of June, up from 7% in April.
  • 15% have received expanded lines of credit as of June, up from 4% of startups in April.

The survey revealed that only 20% of startups applied for the PPP, and half received some portion:

  • 49% that applied for PPP did not receive anything.
  • 36% that applied for PPP received the full amount requested.
  • 15% that applied for PPP received a portion of the amount requested.

Startups are creatively seeking new target markets, business models, and products and services in order to better serve customers:

  • 33% are implementing COVID-19 customer communications.
  • 33% are seeking new target markets.
  • 33% have made no changes.
  • 26% changed their business model.
  • 21% added new products and services.
  • 14% added enhancements to an online store.
  • 13% added delivery and pick-up options.

Many startups are providing employees with flexible work arrangements and protective equipment (PPE):

  • 43% have provided PPE.
  • 37% revised employee policies.
  • 32% made no changes.
  • 30% are teleworking.
  • 27% are implementing employee health screenings.
  • 18% are cross-training in case workers are absent.
  • 13% have staggered employee schedules.
  • 13% are making accommodations for at-risk employees.

These businesses report that they are cleaning more and adjusting spaces and hours.

  • 44% have made no changes.
  • 30% are deep cleaning.
  • 23% are limiting the number of customers.
  • 22% have changed the physical space.
  • 20% have adjusted business hours.
  • 13% have consulted with insurance and lawyers to protect against lawsuits.
  • 6% have found additional suppliers as backup.

Hal Shelton, a certified SCORE mentor, angel investor and author of Amazon best-selling book “The Secrets to Writing a Successful Business Plan”, summarized his observations recently.  I will share some tips he has learned while mentoring clients during the Covid-19 crisis.  Shelton says that “these are difficult times for a small business, for all businesses. Usual ways of gaining and conducting business have been upended. What have we learned, so far, from this experience to apply in our business going forward?’

Shelton speaks from his experience as a SCORE mentor and says that it is important to have a good business foundation in place.  These are not the front-line items of making a product, performing a service, contracting a new customer, attending a trade show—activities that can generate revenue.  The items listed below are often considered lower in importance, a nice-to-have rather than a must have, or just overhead and are consequently pushed off to a later date. The current COVID-19 crisis demonstrates that these are important to have in place and those businesses without them have additional hurdles and challenges.

1. Know your supply chain/vendors/contractors/customers.  You can control the items within your company but are often impacted by other’s actions.

  • Will your customers pay their bills on time?
  • Is your business dependent upon a few customers (i.e., customer concentration)?
  • Will you receive supplies, parts, and other inputs needed to make your business function?
  • Are you dependent on the performance of just a few suppliers?
  • How readily available are service providers if they are sick and unable to perform?

Some of these questions did not have to wait for COVID 19 to be impactful, as those with supplies from China were impacted for much of the last year as a result of the trade war.

2. Have a banking relationship and know your banker.  The COVID-19 economic stimulus packages are being implemented via the banking system, and banks, which are overloaded with applications, are giving first preference to their current customers. Those companies having a good working relationship with their small business loan officer and appear to have more communications about the process requirements and status of their applications. If your bank is not treating you as you think appropriate, then when times improve, look for another banking relationship.

3. Have in place a Line of Credit (LOC).  In these times “cash is king.” It is a best practice to have a LOC that can be drawn if needed. It is your safety net to get through these times or to take advantage of opportunities to provide your product/service to your customers or to grow your business. The best time to get a LOC is when you do not need it. Whatever level of LOC you might have today, look to increase it. Often, there is no cost of a LOC until you use it.

4. Have in place a cash flow forecasting process.  Again, in these times, cash is king. Forecast your cash flow—monies expected to be received and monies you will be spending. Know if you can make payroll, pay yourself and pay some toward your key vendor invoices. This financial modeling can be a simple Excel spreadsheet or something more sophisticated. Depending upon your sales and payment cycles, this could be a monthly forecast for the next 6 months or a weekly forecast for the next 3 months. You need to know your cash in the bank and net working capital position every day.

5. Have relationships with an accounting and law firm.  Most small businesses have these relationships, but are they active? You need to rely on your accountant and lawyer to help you interpret the regulations for obtaining disaster loans as well as actions you might need to take like suspending rent payments, not paying vendor invoices, leaning on customers who are not paying your invoices, etc.

As we do not know how long the COVID 19 crisis will last or what the business/economic conditions will be post-crisis, it is not too late to act now to improve your company’s position and financial health. Learn from this experience to make changes in your business operations. Be the leader your employees and customers are looking for.

Understand that the future is uncertain.  Fully appreciate that there are many things you do not know and that are impossible to know for sure. Reach out to advisors and others who might have operated in similar situations and get their advice. One source of such advice is having a SCORE mentor to find much information about starting and operating a small business.

About the Author(s)

Dean Swanson

Dean is a Certified SCORE Mentor and former SCORE Chapter Chair, District Director, and Regional Vice President for the North West Region, and has developed and managed many businesses. The Rochester Post Bulletin publishes his weekly article on a topic geared toward the small business community. The articles here are printed in their entirety.

Certified SCORE Mentor for the Southeast Minnesota Chapter
Tips to Help Businesses Deal with Impact of COVID-19