How Small Business Owners Can Survival a Crisis
By Karlene Sinclair-Robinson
The financial meltdown in 2008 sent shock waves throughout the entire world. The impact on small businesses was detrimental. This crisis was just over ten years ago, and many have forgotten the ramifications of that time. Many companies did not survive this economic meltdown. They died a sudden death for failing to have a crisis management plan in place for just such a situation.
Fast forward to 2019. We now have the longest government shutdown in the history of the United States of America. Hundreds of thousands of government employees have gone weeks without work and are about to go without their second paycheck. The impact on these employees is already having a ripple effect throughout the country.
The impact of this federally mandated shutdown has imposed tremendous hardships on not just the federal employees but a whole other segment of the population. The federal contractors affected by this government action are now finding their companies on the verge of extinction. Many have already laid off employees. The government had already paid those who are still able to operate.
The fact that there seems to be no end in sight to this issue, many more will be drastically affected, including many large businesses. The companies who provide services through healthcare and other services, cannot bill the government since no one is there to process claims. So, it is not only the 800 thousand plus employees and their families but millions of Americans that have and will be affected. The reality is that one must always be ready for issues like these and more. Whether it’s a storm or a man-made crisis, having an action plan to stem the hemorrhaging of such a situation, is essential to your survival. Surviving is the name of the game and getting through this crisis should be of utmost importance.
The Key to Crisis Management
So, how do small business owners get through, and survive a crisis like a government shutdown or financial crisis, or both? It is essential to consider both internal and external strategies when defining solutions to solving the financial crisis.
Internal Solutions:
- Use Your Savings, If You Have One – Individuals are advised to have an emergency fund to cover at least six (6) months of expenses. This plan should be the same for business owners. Saving a portion of your revenue every month is crucial to surviving crisis periods. I know this is hard from many going through the current financial storm of the government shutdown. You’ll undoubtedly have to use what you have saved.
- Communicate With Your Creditors – It is essential that you are in contact with your vendors and creditors. Keeping them up-to-date on your situation as external factors impact your bottom line is key to how they’ll respond over time. Ask your creditors for extensions, pay as you can to show good faith, and never lie to them.
- Operational Changes to Sustain Survival – Cancel all services you don’t need right now. Magazine and other subscriptions you don’t need should be canceled or change where appropriate. Now is the time to focus on where every dollar is going out of your business. Your priority should be paying your employees and the keeping the essential services going. You might have to change your employee schedule or change the payroll structure. If layoffs are necessary, be very strategic about it.
External Solutions:
- Get a Loan or Line of Credit, If Possible – Consider applying for a loan or line of credit. The concern with this option though is this – banks and other lender sources are also affected by this shutdown. These institutional lenders are not able to approve these types of transactions since the U.S. Small Business Administration guarantees many of the loans and lines of credit that many of you need now. Though this is the case, you might be able to qualify for a small business loan, microloan, or another type of financing that is not guaranteed by the government. There are financing sources who are not government intermediary lenders that can finance small businesses. This option might be your best bet.
- Family and Friends is a Possibility – If your savings cannot sustain you through this period to meet payroll and other financial obligations, reaching out to family and friends might be your answer. You must also consider what their situation is like at this time, as they too might be experiencing challenges.
- Peer-to-Peer Loan Option – This financing method has changed the access-to-capital landscape for both individuals and small businesses. Since the last financial meltdown, this lending option has skyrocketed to the tune of well over $50 billion since 2012. Peer-to-peer lending platforms like Prosper.com and LendingClub.com have entirely shifted the way many view financing strategies, and how they can access the money they need. These two sites alone have financed over four (4) million individuals since their inception. The platform approach makes it easier to process potential borrowers and improve the borrowing experience.
This approach to accessing much-needed funds for many allows for faster and smoother processing. Based on the use of technological advancement, borrowers can now get funded in days, instead of weeks or months. Interest rates offered are determined by borrower’s credit scores and the platform’s credit matrix. If you have low or what’s considered poor credit scores, you might want to find another alternative.
- Other Non-Traditional Lenders Might Be The Answer – Many small business owners might have to consider a non-traditional lender that they might never have considered before. If you invoice your clients, you might have to sell your receivables that are not guaranteed by the Federal Government. You might have to get an accounts receivable line or a factoring line to support you through this period.
Other alternatives might be an investor loan that is structured as a short-term cash infusion to offset the current financial situation. You might have to consider such sources as a ‘Revenue-Based Lenders’ if that is most appropriate for your company’s needs. As it states, you must have revenue with good Gross Profit Margins to qualify.
Using these alternatives are not the only strategies to consider. However, in considering these options, make sure you understand their terms and conditions, so you don’t tie yourself to something you cannot live with, in the long run.
Hoping that this government shutdown will end now, does not fix the long-term adverse effect it is going to have on many small businesses. The key to crisis management is to realize that they will happen. How we survive them is based on how well we prepare for them. Let’s not be blindsided again by such crises like a government shutdown.
Preparation is a must – start saving, create a plan B, and don’t lose hope.