5 Stress-Relieving SME Finance Management Tips During By Valentina Pozzobon

Nothing could have prepared for the economic impact following the spread of the COVID-19. Growth plans that seemed realistic and even conservative only 3 months ago are today entirely wiped out, deemed unfeasible. 

With the current lock-down measures and survival-mode becoming the new normal, the new priority, in face of this crisis, it seems and feels easier to stay under the blanket and wait until this pandemic blows over. Until a wave of normality finds its way back to us. However, as difficult as it might be, we all should resist the temptation to stay hunkered down, playing on defence, during these difficult times. 

As an SME owner, you can decide to treat these dark times as an opportunity to reflect and re-start, despite the stress and the anxiety around us. Ultimately, it is precisely in these tough times where legendary companies and leaders are forged. 

However, while you explore new business ideas and directions, keep your financials in check for the short-term – at least for the next 3-6 months. You want to be in a position where you can afford to come back even stronger, and that is conditional on having liquidity to continue running your business in the coming weeks and months. 

Be creative to bring the business (and your financials) back up! People tend to forget about the value of their assets and of their business, especially during these COVID-19 times. With survival mode and fear kicking in, your brain tends to put confidence and creativity on the back burner. Before knocking at the door of your bank, now it is the time to find alternative ways to get liquidity in the door. Here are 3 tips to make sure you, as an SME, get through these dark times by leading expert Valentina Pozzobon.

Experiment with new revenue and pricing models

Clients that all of sudden found that a) setting an online shop was simple and easy (and the solution was off-the-shelf, too, so no coding or programming experience is required); and b) that they could generate revenue with ideas until now never explored. 

Even Michelin star restaurants tried home delivery, a crazy idea only a month ago! Regardless of your prior attitude to technology: try it! Digitalisation opens opportunities you were thought impossible before. Explore what is possible. Experiment. Dare to try.

Be creative about your inventory. Is there a different – even crazy! – way to sell it, without unreasonable discounts? Few restaurants are selling their wines – coupled with personalised sommelier recommendations – to their clientele to ensure some liquidity. What can you do to move that stock? Once again – can technology help?

Talk with your customers, especially the ones that know you most, and represent your loyal fan base. What would be their reaction to different ways of doing business? Would they be open to switching to a subscription-based model for a few months, maybe at a discount? Would they be open to book your appointments in advance, and would you be prepared to grant them a small discount for the security of your business? Another way to increase upfront cash would be by having more customers purchasing gift cards, that can be consumed later. What would be your consumers’ reaction to buying gift cards, maybe with some discounts attached to make the purchase more favourable? And remember – don’t forget to ask your customers as well for brave, alternative ideas! 

Be bold: Cut those sacred cows

Everyone has those costs that we turn a blind eye on those costs or investment which we are emotionally attached to. That marketing poster down the street? Those promotional pins or branded notebooks nobody uses? Take a swing at costs that you suspect not to pay back but are too politically difficult to cut during better times. Have a clear slate mentality: time to restart and be bold about it. Work the numbers, look at your return on investment. What is going to be key and essential for your success in the future? What can you leave behind? Don’t let sacred cows be a permanent dent in your cash flow. COVID-19 offers you a one-time opportunity. Take it.  

Be open regarding your need for liquidity

One of the key challenges for SME’s is access to cash. Running any business is a risky endeavour, and small businesses are particularly vulnerable. Now more than ever, cash is king, especially if you have already drawn down your credit lines. What can an SME do further?

Take advantage of Government support schemes

Luckily, governments across the world are helping. Without a few exceptions, most have put in place significant state programs aimed at supporting companies in need of bridge financing. Visit your country’s official government sites or your bank website to check which program you could be eligible for. Government-backed support schemes have all different requirements, and it is worth investing time to analyse what is best suited for you and your business, and quickly apply. 

Rely on your family and your network

Family and friends are an important source of emotional support, they can also be an important source of financial support if possible, especially in case of need. Be humble and honest regarding your financial needs and how and when you can repay them. Be upfront regarding the potential risks involved as well. Be open and grateful for any supportive hand. Be also realistic and tactful – chances are that some of your friends are also suffering from the current state of the economy. 

Do not forget to include in this category also your employees, your long-term suppliers, your customers. Hopefully, they care about your company as much as you do – and they are prepared to be of help under the current circumstances. Have an open conversation with them to define options that can work for them and you as a small business. Employees might be prepared to reduce their salary depending on their conditions or might accept a partial deferral in payments. Your suppliers might help you extend your payment dates. Your customers might agree to at least some upfront payments. 

There is no shame in relying on others. On the contrary, if conducted with open communication, in good faith, and with positive intentions, it will strengthen relationships and solidify the network for the months to come. Never underestimate its power to support your business through tough times.

Avoid debt financing wherever possible

With equity fundraising quickly drying up due to the company valuations uncertainty, it might be tempting to opt instead for debt financing. Despite the attractiveness of debt financing in the past years, try to avoid debt financing wherever possible in the next months. You might have to pay a hefty premium to banks or other institutions to get extra funding during these times. Try other alternatives instead – be open and don’t fear of being creative and bold!

Hopefully, the ideas and tips highlighted above can help you overcome these tough months. Some increased financial security will allow you to refocus on what matters: rethinking your strategy, your operating model, the way you interact and create value once the situation from COVID-19 will improve. Don’t let the current uncertainty distract you from the opportunity the future can bring for you and your business.

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