Small Business Should Use This Time to Update Their Business Plans

With the slowdown or complete cessation of business activity we are experiencing, this is an ideal time to update your business plan. Or, if you don’t have a plan, this is a great time to write one. When the economy reopens, business owners will struggle to manage the reopening process, which will include rehiring any employees that were laid off and that are needed, reconnecting with suppliers to schedule deliveries, updating and implementing marketing plans, and the like.

Developing a solid strategic plan, not only for reopening efficiently, but for the long-term success of the business will be crucial once the economy reopens. Those business owners that invest the time while things are slow in developing an up to date business plan will benefit greatly as this ramp back up. The time invested in a strategic plan will save time and help businesses avoid making costly mistakes, once things begin to improve.

A good business plan should include both tactical and strategic elements, meaning short-term and long-term elements that combine to effectively and efficiently drive the success of the business. Using realistic assumptions about the number of employees, raw materials, inventory, advertising, and other key requirements, in the near-term as we transition out of the crisis, and longer-term as operations return to (somewhat) normal levels will help make the business plan realistic and impactful.

Cash management, including working with your bank or financial institution, will also place some parameters or limits on what can be done, both in the short- and long-term. Working down from revenue and pricing, owners can estimate monthly cash flows to determine realistic expectations for sustainable operations, including head count. For example, if prices will need to be lowered to generate revenues in the near-term, the impact on overall revenue from these price changes will need to be carried through the income statement to determine how much cash will be available to drive the business forward.

Active communication with banks or financial institutions to solidify strong relationships to understand the availability of credit will help focus the planning process. Where possible, lines of credit should be secured and increased, so that businesses have more flexibility, at least in the short-term. Any businesses that have not applied for a PPP (Payroll Protection Plan) loan should contact their primary bank and apply. If the proceeds of these loans are used for their intended purpose, this is free money for the small business, so there is no reason not to take it. The SBA says it is out of money, but Congress is discussing adding to the total, so communicate with your bank. Any additional funds will likely be distributed on a first come, first served basis.

Ensure that your accounting is accurate and up to date so that historical financial information can be incorporated into the planning process. Breaking down business operations into logical segments will help to better define areas that need attention, or that offer opportunities for improved performance.

Identifying areas of significant cost can also help the planning process. There may be opportunities to work with suppliers to secure discounts or more time to pay, which can improve the cash conversion cycle – the time it takes for the cash paid out to come back into the company. Managing cash, as noted above, is the most critical aspect of the planning process for most businesses. If more favorable terms can be established with suppliers, and with banks, the business will have more cash available to support operations, and to provide a cushion if sales are more volatile.

Look for marketing opportunities, including loyalty discounts, promotional events, partnering with complimentary businesses, cross-marketing with neighboring businesses, enhancing online marketing spend, and the like, will help jump start business, once the economy reopens.

This is a challenging time for everyone, and small business owners are no exception. In fact, they not only have their own personal situations to worry about, but have the added burden of worrying about their businesses failing, which not only would cause serious financial difficulties for them personally, but will also harm their employees. This is a heavy burden to be sure. But, by using this down time proactively, to update business plans, small business owners can prepare effectively for when businesses will reopen, which will not only give owners more confidence in their plans, but will also provide a roadmap for successful operations, removing the added uncertainty that can result from a lack of proper planning.

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