Apart from a handful of experts, no one could’ve predicted the fast spread of COVID-19 and its effects on the economy. The UK has more than 376,000 cases so far and that number continues to rise. This is despite the stay-at-home orders issued in March. Significantly fewer people are going outside and buying goods and services. As such, companies are forced to operate at limited capacity, pause their businesses or shut their operations down entirely.
How COVID-19 Has Affected Businesses
A report by McKinsey detailed the pandemic’s effects on SMEs. It found that pre-COVID, over 80 per cent of Britain’s small businesses reported having stable or growing revenue. Now, about 80 per cent also said that their revenues were declining significantly.
There were growing concerns about defaulting on their loans, being able to pay and retain employees and not being able to expand their business. One of five participants, who were interviewed mid-June, believed that their business would go out of business by August. The researchers also predicted that more than half of these SMEs may be out of business in a year.
The economic effects of the pandemic can shut down the business you’ve worked so hard to establish. So, what can you do to shield your company from such issues?
Diversify, but Stick to Your Core Competencies
One way to keep your business afloat during economic crisis situations is to increase your cash flow. An effective method to boost this is to offer more products and services. However, you should be careful about diversification. You don’t want to end up selling things that are well beyond your specialization. You’ll end up wasting time and money.
An excellent way that today’s companies are diversifying their offerings is by adapting their manufacturing techniques to create products that address the pandemic. For example, liquor companies and distilleries like Pernod Ricard and Diageo have pivoted to creating a different kind of alcohol: hand sanitizers. Designers and other fashion businesses have also shifted to making masks.
These are efforts to help out people in dire need of them now that supplies are low. And they do all this without having to buy extra equipment, acquiring more workers or changing much of their operations. It’s an efficient way of creating a new stream of revenue.
Build Your Business’ Emergency Fund
Your business should also have savings not just for expansion, but also for emergencies that your insurance won’t likely cover — like pandemics. Keep away at least 10% of your yearly revenue in a bank account for emergencies. You could also automate every transaction to send a small fraction of money to that account. You should also forecast your operating expenses for a few months when emergencies strike, so you can increase or decrease your savings accordingly.
Another way to grow your savings is making smart investments. You can buy stocks in different companies and earn money as they do. However, investing can be challenging to do if you don’t have the knowledge and experience for it. You could end up investing in an established company with very expensive stocks and lose more than you gain. On the other hand, you don’t want to gamble with small startups with little to no chance of success. If you’re not an expert at this subject matter, get help from an investment management company. They’ll know which companies are worth spending money on for your portfolio.
Get Familiar with Funding Options
Even with savings and investments, your business may still go under in situations like this, where the whole world has been experiencing economic issues for months. As such, it’s important to know different options to finance your business. One way to do this is to get financial assistance from the government.
The UK currently has a fund right now to help small businesses get back on their feet during the pandemic. It allows companies to gain access to loans of up to £5 million. The government will pay 80% of the finance to the lender of choice and take care of interest for the first year. It also offers loan schemes for medium to large-sized businesses with yearly turnovers of up to £45 million. This entitles businesses to access loans of up to £200 million.
Economic issues brought on by unexpected problems like pandemics can cause your business to sink quickly, especially if it’s just a small company. Improve your cash flow by diversifying your products and services. Use those earnings to save for an emergency fund. And when these options aren’t enough, get help from the government. There are times when you may feel like you’re saving for nothing, but economic disasters can happen at any moment. You’ll end up thanking yourself when you have enough cash saved to keep your business afloat throughout the next rainy day.