Small Business Recovery Hinges on Entrepreneurial Resilience and Savvy

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Small businesses have sustained a particularly tough year and a half since the pandemic began, but now the economy is reopening and morale is rebounding. One Q1 2021 study found that 92% of small business owners expect that their companies will thrive in the next three to five years, and 75% hope to recover completely within 12 months.

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That’s just as well, because the rest of the economy depends on them. An individual corporation may employ hundreds of times more people than a single small business, but collectively, small businesses are mighty. Between 2000 and 2019, small businesses created 10.5 million new jobs, while large businesses provided just 5.6 million. Additionally, small business revenue trickles out into the community far more than that of  large corporations.

But the extent to which small businesses bounce back depends greatly upon small business owners themselves and how they react to the specifics of their own situations.

Adi Engel, the CMO of small business management software company vcita, said she’s keeping a close eye on three key parameters. “First, there are the return-to-work patterns, where many small business owners are not able to return to full head count, as their former employees are unable or unwilling to resume their previous roles,” she explained via email.

“Second is the attempt to ascertain the sustainability of the new work processes that were created over the pandemic, particularly the push towards digital-first services,” Engel added. “Lastly, many commitments were made by financial institutions and governments to support SMEs, mostly in 2020. We are yet to see the full impact of these, many of which are yet to be fulfilled.”

Fiscal savviness and better funding go hand in hand

As small businesses continue to reinvent themselves with digital processes and service fulfillment, access to capital has become even more critical than before the economic slowdown.

“Access to funding is a fundamental requirement to all business growth, and isn’t unique to SMEs,” noted Engel. “Think of any startup or publicly traded company – all are funded by investors. From an SME perspective, those investors are normally banks, lenders and governments, and they all have a role to play in the recovery of the economy.”

Of course, smart fiscal planning enables small businesses to optimize business models and maximize profits, so they know in advance when they’re likely to need a loan and can allow enough time for the application to be considered and funds to clear before things become critical.

Additionally, different types of loans, like merchant line of credit, long term loans, equipment financing, etc. are appropriate for different situations.

Most experts recommend forecasting revenues six to 12 months ahead, and run cash flow projections on a monthly basis. Sales forecasting should draw on multiple data sources, including CRM for sales pipeline, invoicing for sales performance, and business metrics like billings and expenses.

When it comes to growth, it can also be helpful for entrepreneurs to plot how many customers the average team member can serve well, to know when it’s time to add another employee. That way, it’s possible to calculate and prepare the extra salary and benefits ahead of time.

“Emergency funding can be a lifeline for many business owners, and in return it will expedite the recovery of the entire economy,” said Engel. “However, it’s a short-term solution. Whether offered by a financial institution or government agencies, we should think of it as an investment, and as such, it should come together with real tools to support business growth over time.”

Business growth doesn’t depend on money alone

While funding lines are crucial, they aren’t the be-all and end-all of business growth.

It’s at least as important to digitize finances, automating and keeping track of accounts receivable processes, while also tracking all data around expenses, including recurring overheads, utilities, tax obligations and the like.

Better business planning also underpins effective business strategy. With an accurate grasp of cash flow, entrepreneurs can better sense which risks are a step too far and could lead to disaster, and which ones mask opportunities which could drive business growth.

Accurate forecasting helps reveal risks and opportunities while they are still emerging, giving entrepreneurs time to decide how to respond.

The digital transformation won’t end with the pandemic

Vaccines may be rolling out, but the COVID-19 digital transformation rumbles on. Small businesses embraced digital tools for the sake of survival, but now they need to hold on to them to thrive and grow.

It’s estimated that digital adoption saved 11 million American small businesses from full or partial closure during the pandemic, with many of them forced to pivot due to a lack of other options. Likewise, manual management of appointment scheduling and customer communications are pitfalls to avoid.

Now is no time to abandon these digital gains, according to Engel. “Opting in to digital tools for business management has long been identified as a critical component in an SME’s growth,” she said. “As the financial landscape is increasingly digitizing, it is also the key to ensure business owners and their supporting ecosystem speak the same language and measure the same goals.”

Today’s customers have learned to accept and, in many cases, expect digital channels like chatbots, self-serve portals, contact-free and mobile payments, and online scheduling. They aren’t about to stick around for small businesses that don’t offer them any more.

Transformative agility and resilience

With the right help from governmental institutions and funding partners, SMEs can survive “the great resignation,” always-changing social distancing mandates and whatever other challenges come along this summer and beyond. These are unsure times, but there are reasons to be cautiously optimistic.

For their part, small business entrepreneurs can drive the economy forward, but only if they improve their fiscal and operational organization, access the right funding at the right time, and consolidate their digital transformation for the long term.