Businesses across the country have barely hung on after the arrival and persistence of COVID-19. According to the U.S. Chamber of Commerce Small Business Coronavirus Impact Poll, 70% of small businesses worry about financial hardship from prolonged closures, and 58% of business owners are concerned over having to close their business permanently. Only companies that move quickly to readjust their business plan are the best positioned to survive.
“Coronavirus definitely affected our bottom line,” says Wei-Tian Hao, co-owner of Chanpontei, a ramen restaurant in Hawaii. The restaurant was relatively new, and thanks to word-of-mouth, location-based marketing and social media promotion, the business was doing well.
“We had to pivot,” says Hao. “We offered takeout, amped up our digital advertising and changed up our menu slightly to adjust to the lower volume of customers.”
Hao also helped open a restaurant in Singapore called Tempura Fuji Westgate that offered delivery and takeout. “Singapore is doing a lot better with managing the pandemic, and I’ve learned a lot from our experience in Hawaii,” he shares. “The takeout business model is a lot easier to manage and more resilient to a pandemic.”
To develop an effective plan to rebuild, business owners must take a thorough look at the numbers. What has been the financial damage this year due to COVID-19? “Understanding your financial position at any moment is critical to the survival of your business,” says Lori Hiramatsu, business advisor for the Veterans Business Outreach Center of the Pacific. “It’s really hard to be able to ascertain how you’re going to move forward without that piece. Review and understand your business financial statements, especially with your 2019 and 2020 financials.”
Hiramatsu suggests reaching out to your local or regional SBA office, as they often have someone who can help assess the financial health of a company. “After you know what shape you’re in, you can identify possible resources and future budgets. But first, figure out what types of collateral your business has and how much of your capital reserves you have left,” she continues.
Creating a list of debts your business owes will also help clarify financials. “Write down the lender amount terms so you really have a big picture of your business’ financial health,” says Hiramatsu. “I know that the PPP (Paycheck Protection Program) forgiveness process hasn’t started, but let’s take a conservative approach. What if in the worst-case scenario, you aren’t forgiven? What should you do? You want to make sure you have a plan for all that, and add it to your list because it’s going to be useful for your financing package when you talk to a CPA or financial expert.”
COVID-19 has changed the business landscape for most, and businesses across the board have to redefine their expectations, margins and short-term business objectives. “Go back to your business plan and see if your goals still make sense with the pandemic,” says Hiramatsu. “Maybe you have to tweak it based on what your next step is going to be and how you pivot your business. You’re going to have to redefine a few things based on market analysis, consumer behavior and financial health.”
Hao, for example, had originally planned on making enough revenue from his ramen restaurant in Hawaii to open another Chanpontei in the U.S., with California in mind. “I’ve definitely pivoted and changed the way I look at, prepare and manage business operations,” he laughs.
Some businesses may have had to pivot by turning their services into a product or reconfiguring a space to ensure social distancing. “Whatever it is that you changed, you have to make sure it’s all still going to be relevant to the customer moving forward,” says David Oyadomari, managing director at Ekklesia Capital, a management consulting and private equity firm.
“Think about what gives you an enduring competitive advantage from all the other people who are trying to solve the same problem,” he continues. “Once your business can answer that question honestly and create a vision to rebuild your business, I think the money will start to come in naturally.”
For businesses in need of additional capital to stay afloat, Hiramatsu says a business plan is imperative. “Showing that you have projections and strategies that are grounded in data and numbers will set you ahead of the game because that’s exactly what a lender wants to see,” she says.
Unless your business did exceptionally well and has somehow maintained positive cash flow during the pandemic, you’re probably looking for extra funding in order to rebuild. A study from the Federal Reserve Bank of New York showed that only one-in-five healthy small businesses had enough cash reserves to maintain normal operations while experiencing a two-month revenue loss.
“If you’re going to reach out to a lender, take a deep breath and have all documents prepped and ready to go,” says Hiramatsu. “The biggest things you’re going to want to have on file include the revised business plan we talked about earlier, a projection of your cash flow that includes things like your profit and loss sheet, as well as your balance sheets. You’ll also want to check your FICO score and make sure your personal finances are also organized.”
Below are five viable options available from the SBA and commercial banks.
“COVID-19 has brought a lot of hardship to small businesses, and we want to help them get back on their feet,” says Wai-Chun Li, senior vice president and manager of East West Bank’s SBA lending department. Although many people might think getting an SBA loan is too much of a hassle because it’s linked to a government agency, he reminds people that “it’s really a good option, especially in the case that something were to happen and the business defaults, the majority of the loan would still be paid back by the government.”
Regardless of which capital access option you decide to take, Oyadomari recommends that all business owners proceed with caution. “Now isn’t the time for risky propositions for your business,” he says. “Go back to that business plan, and if you have access to capital, make sure you’ve done the research to ensure that your existing set of products still make sense for your market, and then see if there’s a way to increase that addressable market.”