Vice President of Business Banking, Jack Mohr, and Vice President of Small Business Community Lending, Karl Riley, of Fifth Third Bank share best practices to help you budget and forecast revenues for your small business during the uncertain economy caused by COVID-19. Many business owners are struggling with the rapid and sudden loss of stable revenues, but it is important to remain optimistic and nimble when managing your current revenues and planning for future revenue sources. Strategic budgeting and forecasting in this changing landscape must include awareness of your current finances and the flexibility to adapt your business models to the uncertain economic times.
Re-Projecting Revenues: When and How Often
Due to the economic repercussions of the pandemic, revenues in 2020 and 2021 will not match earlier projections for most business owners. Mohr recommends re-projecting revenues more frequently during uncertain economic times. Projecting revenues, expenses, and income statements on a weekly basis allows you to be more flexible when adjusting to an uncertain economy. Riley suggests developing a relationship with a CPA (Certified Public Accountant) or keeping close track of your finances by using an accounting software like QuickBooks. Developing multiple projections for different economic scenarios will give you a financial roadmap to follow no matter what comes next.
Cutting Costs vs New Income Sources
All businesses have been impacted by the pandemic, but service industries, like restaurants and salons, have been especially hard-hit. When faced with the choice of cutting costs or pursuing new sources of income, it can be challenging to know what to focus on first. Riley says keeping lines of communication open with your employees and business advisors is more important than ever. That way, you and your team can respond quickly to changing circumstances. In the era of sanitizing and PPE, in has been challenging for many businesses to cut costs. Mohr recommends getting creative when considering how to cut costs, while also pursuing new sources of income.
To cut costs, you must first prioritize your expenses into needs that you must pay for, like rent and inventory, and wants, like new décor for a shop.
Considering how you can pivot your business to fit the current times might involve transitioning from in-person services to delivery services, cashiers to personal-shoppers, or manicures to DIY kits with instructions and video–chat support. Creativity and knowledge of your current finances are both key to successfully cutting costs and simultaneously developing new income sources.
Outside Sources of Capital (Loans)
When should a small business owner consider seeking outside sources of capital, like loans? Outside capital can be a pro and a con at the same time. Mohr points out that the pro is the infusion of money you get, but the cons can be the cost of the capital, like paying back a loan plus interest, or giving up some ownership shares of the business to an investor. Weighing the potential benefits and the costs over both the short term and the long term will help you make the best decision for your business. Riley reminds us that having a good understanding of your finances, through cash flow statements and income statements, is helpful when applying for a loan.
Changing Business Models
Tips for Adapting to COVID restrictions
- Protect your people and your customers by operating remotely, if possible, or supplying PPE and implementing social distancing.
- Consider if adjustments will be temporary, like the need to social distance, or long-term. Invest your time and resources accordingly.
- Changing your business model does not necessarily mean increasing your costs. Costs could stay the same or even decrease. For example, many real estate agents are hosting virtual tours. While they have a small cost to their online hosting platform, they no longer incur the greater cost of hosting in-person open houses.
- Creativity and flexibility are key to business success during the current times.
- Remain open to what your customers are willing and able to do, so you can meet their needs.
What Does the Future Hold?
No one has a crystal ball, but Riley believes that the next 6 months will continue to have lower revenues. Mohr adds that the return to normal revenues will be a slow, but there will be a steady increase back to pre-pandemic levels. Consider developing two different revenue models, one with a more positive outlook and one with a more conservative forecast. This can help you respond more effectively to the economic situation in your local area as challenges arise.