Business Lessons From COVID-19
Key takeaways on how to better prepare your business for future black swan events
It’s probably extremely unfair to think that businesses could have been prepared for the economic downturn caused by the COVID-19 pandemic.
Even forward-thinking business owners who normally do a great job planning ahead could be forgiven for not being prepared for the magnitude of the financial hurricane that many are trying to navigate this year.
There are, however, some key takeaways for what businesses can at least try to do differently about being better prepared for a once-in-a-generation (maybe once-in-a-century) black swan event.
Run a worst-case scenario twice a year. What happens if your business lost 80% of its customers overnight? What about if it had to completely shut down for three to six months? These worst-case scenarios may have been unthinkable a year ago, but now they are reality for many small businesses. A worst-case scenario for your business should be updated at least twice a year so you have a plan ready for action in case the unthinkable happens.
Prioritize an emergency fund. It can be tough for an owner to leave retained earnings untouched for a rainy day that may never come. Every business should, however, do their best to have an emergency fund that covers at least 3 to 6 months-worth of expenses. That’s obviously easier said than done for businesses in some industries that operate on slim margins. But the attempt to accumulate a sizeable cash cushion should still be made.
Review your business interruption insurance policy. Some business owners were greeted with the unwelcome news that their business interruption insurance policy did not cover the COVID-19 pandemic. A visit to your insurance agent should be on your calendar for sometime soon to go over your business interruption policy with a fine-tooth comb. Discuss with your agent all the events that are excluded from your policy and if there are separate riders available for these excluded events.
Have a team of trusted advisors ready to interpret new laws. Multiple new laws were enacted in response to the COVID-19 pandemic for U.S. citizens and all sizes of U.S. businesses. While it’s helpful for business owners to understand the basic framework of recently passed legislation, you should rely on your team of attorneys, CPAs and other professionals to properly interpret and apply new legislation to your specific business.
Strengthen your banking relationships. Some businesses were left empty-handed when COVID-19 relief loan programs became available because these businesses didn’t have an existing relationship with a preferred loan administrator. Consider meeting with your banker twice a year to go over your financials and discuss various lending program. Even if you’re a cash-only business who shies away from any form of debt, it’s always a good idea to have an existing banking relationship in place in case a once-in-a-century black swan event shuts down your business for a period of time.