Tips for small businesses in a tough economy

While the country is in economic turmoil as a result of the Covid-19 pandemic, entrepreneur and author Mike Michalowicz has a message of hope. The economy will eventually recover, he says, and the actions small businesses take now can make a difference in whether they’re prepared to thrive when recovery comes.

Michalowicz, a former Small Business Administration Young Entrepreneur of the Year award winner and author of six books, including Fix This Next, spoke during a Verizon Small Business Webinar Series event.

Times are tough, Michalowicz acknowledged. “The world has punched us in the face. We’ve got a bloody nose and a black eye.” But this is no time to give up, he says.

“The backbone of our economy is small business. So not only do we want to survive, we have a responsibility now,” Michalowicz says. “So we need to step up.”

Following are some highlights from the webinar:

What if you’re in an industry that’s particularly hard hit, such as the restaurant industry?      

Stick to your core competencies but repackage them using a technique called “one step back,” Michalowicz says. So if you deliver food to tables, think about what happens immediately before that. That could lead to numerous ideas. Takeout and delivery are obvious options, but you could also provide a virtual cooking class or deliver the raw materials and recipes so people can prepare their favorite dishes at home. You may not make as much money, but your costs could be lower too. And it’s a way to continue supporting your customers.

Does changing my marketing message to reflect the current situation make it seem like I’m taking advantage of the situation?

Ask yourself whether you are pursuing opportunity or being opportunistic, Michalowicz says. Being opportunistic is taking advantage of someone else’s disadvantage. Pursuing opportunity is seeing someone’s need and trying to help them with your business. Survey your customer base to find out how you can best serve them.

And don’t stop marketing, Michalowicz urges. “I would argue this is the most important time to market, so customers are aware of you. Because if they don’t find you and they need a solution, they’re going to find an alternative, perhaps a bad alternative. So you have an obligation to sell.”

Do you recommend offering discounts now?

If doing so will help you keep customers and if you don’t lose money on the discount, it can make sense. You might also be able to repackage a service and deliver it at a lower cost. But don’t cut prices to such a point that you’re not making any profit and your business can’t survive.

Should small businesses continue relying heavily on Google search and other digital channels to drive local business?

CPM, or cost per thousand clicks, has been dropping, Michalowicz says, so unless those costs shift back up, there’s an opportunity to advertise more than ever right now. But your advertising should speak specifically to customers’ concerns. For instance, if your business involves contact with customers, safety may be a bigger concern right now than price. Address that in your messaging.

How should we communicate with furloughed employees?

“Candor is the starting point,” Michalowicz says. “Candor means truth as you see it but with empathetic delivery.”

He recommends that you clearly explain why you’re making the changes and that you hope to position the business to rehire employees when economic conditions improve. If you hope to bring particular employees back, stay in regular contact: Ask how they’re doing and provide updates.

When the economic recovery begins, there will be clients looking for new vendors because their previous vendor is no longer in business. “We’re going to experience a surge period,” Michalowicz says.

Being able to staff up quickly with an experienced team will help position you to take advantage of new opportunities. So businesses should be in a recruitment mode even now, though they’re not actively hiring.

Should I take out a small business loan offered by the government?

“Only take a loan once you evaluate the reason for taking the loan,” Michalowicz says.

A loan will buy you time, but without a solution to the underlying reason you need money, your business could be in even bigger trouble when the funds run out and the loan comes due.

Under some of the new loan programs, the debt can be forgiven and become a grant, but Michalowicz says businesses need to be certain they will qualify for forgiveness. “Work closely with your accountant or bookkeeper to verify whether it’s going to be forgivable realistically.”

Should we apply for a government loan even if we don’t need it?

Possibly. If an SBA loan turns out to be an outright grant—and you’re sure of that in your case—not applying could put your business on an uneven footing when competing against other businesses. And although your business may be doing all right now, if the economic turmoil continues, you may need the money in the future.

But again, Michalowicz says, tread carefully. “My sense is if I don’t need a loan… I’m actually going to avoid it altogether,” he says.

There is also a moral argument to be considered. With a limited amount of funding, will you be taking money away from a business that needs it?

What data sources should we pay attention to better forecast what's coming next?

From an internal perspective, look at which of your products are selling—whether they are your big money-makers or low-margin products. Then look at your clients’ clients—are they winning or losing business?

“If they’re losing business, I know that one month from now … they’re not going to have the money to pay me,” Michalowicz says. If you sell directly to consumers, look at those consumers’ sources of income. Will they have money in a month to shop with you?

When should we scale down a business? When is it time to close?

If sales are dropping and other revenue-boosting attempts (say, increasing margins or increasing your volume of high-margin sales) aren’t viable, you need to scale down as fast as you can to control costs. Don’t jeopardize your personal finances. Creditors place more value on your personal credit history than your business history, so if you need to choose between the two, protect your personal finances.

If our business is closed, should we cancel services such as internet and phone?

Notify each vendor and explain your situation. Many will try to accommodate payment delays. It’s risky to cancel service entirely because when you are able to reopen, you may not be able to get up to speed quickly enough.

What can we do if our small-business tenants aren’t paying rent?

Have a candid conversation with them. Ask how much they can afford, and consider having them pay a small amount weekly. Even if it’s less than you were getting before, by having them pay weekly, you are keeping that obligation in the front of their mind, so they are less likely to let it slide and pay other people before they pay you.

How can nonprofits effectively fund-raise at this time?

You need to speak to what people are immediately concerned about. One option: Consider repackaging your message. For instance, an organization raising funds to fight cancer might say it’s reallocating some of the money it raises to help Covid-19 patients or to help cancer patients with Covid-19. You want to keep your donors engaged and in the habit of giving.

Any other tips for coping during the downturn?

Track any expenses you’re incurring that are strictly Covid-19 related—for instance, disinfecting products or equipment to allow employees to work remotely. The record you create may prove useful if you’re applying for a government relief program, applying for credit or trying to sell your business in the future. You’ll be able to demonstrate how your business would have been performing absent the pandemic.

Also consider canceling your credit cards and having them reissued with new numbers so that automatic billing is canceled; this will surface any subscriptions or services you’re paying for that you may no longer need and can discontinue to save costs.
 

"The backbone of our economy is small business. So not only do we want to survive, we have a responsibility to now.”
— Entrepreneur and Author Mike Michalowicz

“Don’t try to save everyone’s jobs and sink the corporate entity. Then everyone’s out of a job.”
— Entrepreneur and Author Mike Michalowicz

“Only take a loan once you evaluate the reason for taking the loan.”
— Entrepreneur and Author Mike Michalowicz

Get more insights on ways to help your business thrive from the Verizon Small Business Webinar Series.