Financial Crisis – What Your Business Can Do
Crises, at any level, are disruptive. During times of intense disruption, like the COVID-19 pandemic we are experiencing, two things are essential: 1) Navigating the immediate financial risks to emerge with minimal damage: 2) Preparing for a post-crisis world that might look distinctly different from the world we live in right now. Many business owners are focusing too much on the now and not on their future.
How Have Owners Responded?
There are owners whose immediate reaction is to cut as many expenses as possible, which can be far more hindersome in the long-term. These immediate responses are what many people call “panic mode.” When you’re making major life choices and financial decisions in a short timeframe and under emotional distress, the outcomes aren’t going to be what you want. When recovery happens, the people in panic mode find themselves in a hole with resources, capacity, and other things they need to resume growth, and it can take months to reposition the company for growth.
If you look at the long-term, every crisis is also an opportunity to earn the trust and credibility of your customers, partners, community, and family (not necessarily in that order) by helping them deal with the crisis. Here are three ways to be financially smart during COVID-19.
Look at What is Essential to Your Company
Marketing is often one of the first things to go during times of financial stress. But according to Forbes, organizations that invested in advertising during adverse economic times gained a significant market advantage during the downturn and when the economy recovered. Marketing allows for:
- Competitors to cut back on their ad spend. It also allows advertisers to reposition a brand or introduce a new product.
- The cost of advertising drops during recessions. The lower rates create a “buyer’s market” for organizations.
- Organizations can project to consumers the image of corporate stability during challenging times.
Let’s take Amazon; for example, in 2009, during the “great recession,” Amazon sales grew by 28%. Amazon released new products during this time, most notably Kindle products. Then on Christmas Day 2009, Amazon customers bought more e-books than printed books.
Cutting employee pay and benefits is often another thing companies do during a crisis. ApexBenefits created a national survey with respondents facing the hypothetical situation of losing their employer-sponsored insurance. Of full-time employees, 38% expressed that they would plan to leave within 12 months, with a full 15% of respondents revealing that they would leave their job immediately. That isn’t good for you as an employer. After the crisis is over, you wouldn’t want your good employees working for your competitor. Keeping pay and benefits allows for:
- Higher retention rate along with attracting new talent
- Higher morale among employees which means more productivity
Let’s take Lego; for example, in 2009, during the “great recession,” profits soared 63%. Exploration of the global market was the key to this company’s success. Lego was able to grow and expand to Asia and increase its sales in Europe.
Apply for Government Help
Your organization may still be hit exponentially hard, and you may need more financial assistance than you expected. Luckily, as of March 17, Treasury Secretary Steven Mnuchin announced that the IRS would defer $300 billion worth of tax payments for individuals and businesses. Corporations can defer up to $10 million of payments owed to the IRS, interest-free, for 90 days, while individuals can defer up to $1 million. This helps in many instances; however, there are several states that are now eligible to apply for disaster assistance through the Small Business Administration (SBA) if you need more help.
The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing during the pandemic. Small businesses may apply for a loan here.
There is also local assistance you can apply for. Check out this article by Forbes with a list of state loans you can apply for.
When a crisis strikes, addressing the issue at hand is the first and most critical task, but it’s closely followed by communicating effectively with your customers. Poor communication can destroy the trust that you’ve worked hard to establish with your customers.
You’ll want to be proactive in your communication and pick up the phone first, before your customers call you asking to cancel or reduce their business. Be top of mind and start asking them what they need, or how you can help them. If you want more information on this, you should check out our video “Real Talk: Sales Leadership – Customer Messaging.”
Getting creative with your customers is going to be vital right now. It’s time to get financially creative with your products or offers as well. In some cases, being creative could be simply sitting down with your clients and explaining how your products or solutions can help them get through the crisis. This is where your differentiator becomes essential. Read more on how you can stand out from the crowd with our blog, “Differentiation – Do You Know What Yours Is?” It’s much more challenging to get someone to resign-up vs. some consolation on terms, inventory, or product.
Make sure salespeople are strong at asking questions to understand their client’s business and thinking of creative solutions to their problems vs. just trying to sell them a product or service.
Companies that attempt to cut expenses only considering their current state will likely suffer in the long run. They will face high turnover rates and disgruntled workforces. Workers recognize the difference between a respectful employer and an opportunistic one. These companies may also lose customers and not be able to make that up after the fact. The companies that truly partner with their customers during hard times typically get rewarded over the long run. Plan for your future, and don’t let short term tactics kill your long-term financial strategy.