5 Lessons for Managing Financials in a Pandemic
Having your financials in order and being in a position to pivot when disaster strikes can save your company.
What do variable costs, supply chain, inflation, and COVID have in common? Well, when you are trying to run a growing company, they are the things that keep you up at night…every night!
Over the last two years, I have spoken with hundreds, maybe thousands, of business owners about navigating their companies through the pandemic. We discussed everything from running straight at COVID, full steam ahead, to giving it all up and letting someone else deal with all the headaches.
Thankfully, most business owners chose options in the middle of the two ends of the spectrum, and I still communicate with most of them today. I recently asked some owners in the group “What was the hardest part of running your business in 2020 and 2021?” The overwhelming majority of them replied that managing financials was, by far, the hardest part of their business over the last two years. Some business owners went into detail. Here are some lessons they learned:
- Net 30 Doesn’t Mean “Net 30” During a Pandemic – Many business owners learned the hard way that rules and promises sometimes are reset when the entire country goes into lockdown. Companies that extended credit at the beginning of COVID said it took much longer to get paid which squeezed their cash flow.
- Get to the Front of the Line When the Government Offers Grants and Low Interest Loans – The first round of PPP loans as well as state and federal grants had ambiguous repayment and eligibility terms. Small businesses were hesitant to initially apply for the loans and grants out of concern that the changes to rules and requirements would adversely affect their companies. In subsequent rounds of loans and grants, the number of applications measurably increased as the rules and terms were clearer to business owners.
- Assume the Worst When Things are Bad; Then Go Deeper – One business owner told me “I thought my business hit rock bottom in 2021 with COVID, and then I found out that the recovery was worse than the pandemic. I still don’t know how we survived everything.” The lesson he learned was to always have a backup plan—even to his backup plans.
- Customer Loyalty Shows Up When Times Get Tough – Some retail business owners I spoke with sold customers gift certificates to generate much needed cash when sales slowed to a crawl. In some cases, the certificates were sold at a discount (e.g., $100 certificate for $90) while other customers refused the discount and paid the full amount to show their love of doing business with the retailer. The retail businesses that survived all seemed to have strong relationships with their customers.
- Having My Financials in Order Saved My Company – This quote came from a business owner who was in the early stages of buying a competitor when COVID hit. He re-ran projections based on future earnings, looked at his finances, and realized that the purchase could potentially drag his business down. He ended negotiations in 2020, then revisited the opportunity in 2021. He acquired his competitor for about half the original asking price.
Over half the businesses I spoke with were around for the Great Recession in 2008. They all agreed that being in position to pivot their companies at the first signs of trouble was critical to surviving the recession and the pandemic.
The moral of this story: Whether it is a natural disaster or one that is man-made, when you plan for the future--hope for the best but prepare for the worst.