Business owners should heed priorities next year
Resilience marks 2020, vigilance vital for 2021December 3rd, 2020
With a year of economic disruption and upheaval almost in the books, it’s clear Spokane businesses already have done much to adjust to the pandemic and plan for the future. Yet staying competitive in the year ahead will require continued vigilance, resourcefulness, and planning.
While it has been a tumultuous year, we see resilience among companies. According to a recent national study Umpqua conducted of 1,200 small and midsized enterprises, about 40% of Spokane businesses surveyed say there are a few areas they’ve had to adjust to, but they’re confident they can make these changes to stay profitable and competitive. Another quarter of respondents say they’re making fundamental changes that will significantly impact business models. And another 25% say they’re more competitive than before the pandemic.
Yet we’re counseling companies not to let up. Having survived the initial shock of the pandemic and all its disruption, businesses should focus on short- and long-term strategies to stay competitive. Here are some focus areas businesses should prioritize as the year draws to a close.
Having high cash reserves brings multiple benefits, with the main one being flexibility. About 68% of Spokane companies say they’re keeping more of it on hand or were very or somewhat likely to do so due to the pandemic. The Paycheck Protection Program helped by providing many businesses substantial funds for a time to keep moving forward while the economy stood still, and most companies that took out loans will have them forgiven. Documentation requirements have been simplified, so you probably only have to submit payroll information to your bank. And you have 10 months from your dispersal date to apply for forgiveness.
To build cash reserves more sustainably, we encourage companies to exercise more control over their payment streams. One invaluable tool is “integrated payables,” a process of automating and digitizing most payment functions, giving businesses a 360-degree view of inflows and outflows, and bringing much more efficiency to treasury management. As part of the process, you avoid the high cost of writing paper checks. Using corporate cards for payments will give companies 25 days of additional float compared with a check. Also, accepting credit card payments will get cash in hand within two days, so many companies accept paying a merchant fee to do so.
All of those measures can really make a difference. A company with roughly $20 million in annual revenue would increase working capital by almost $55,000 for every day it collects receivables sooner. It’s not uncommon for our customers to reduce borrowing needs from their credit line by 25% or more by switching to integrated payments and digitizing money flows.
Safeguard Working Capital
All the hard work spent on building working capital can be erased in minutes, as we’re seeing fraud increase across the board. In part it’s due to tougher economic times. Fraud also increases with the holidays, and the number of businesses inexperienced or moving for the first time to e-commerce platforms as a result of the pandemic has given criminals more vulnerable targets.
There’s, of course, external fraud, such as business email compromise, where cybercriminals pose as executives, using C-suite email addresses. They use those aliases to order accounts payable personnel to fulfill “urgent” requests and send funds to a specified account. Unfortunately, we’ve seen this happen all too often, sometimes with companies losing as much as $100,000 or more, and it’s usually very difficult to get the funds back.
At the same time, embezzlement by employees is also more common than many realize. One way to safeguard against fraud is to use dual authorization on all payments over a certain amount. For recurring payments, the person setting up the template should be different from the one making the payment. Also, train personnel to pick up the phone and verify larger sums requested by executives. Remaining vigilant here can mean the difference between profit and loss for 2020 and beyond.
Plan Post-pandemic Workforce
In a sense, Spokane businesses have already set the stage in the workplace for a post-pandemic world: 86% say they had already let employees work from home or were likely to do so moving forward. And they’re investing in related technology, too, with 56% having increased spending on technology, digital transformation, or automation. Teleconference platforms, virtual private networks, and cybersecurity all have factored into the rise in spending.
All of this will have a lasting effect and force businesses to adapt with shifts to remain competitive. The work-at-home setup has boosted productivity for many workers, and employee expectations for workplace flexibility will continue. As a result, companies will need to consider permanent revisions to their policies, plan for using less space and using space differently. For example, REI announced the sale of its brand-new Bellevue headquarters to Facebook for $390 million in September, citing the benefits of working at home. The move shores up its balance sheet during pandemic and allows the company to recruit from afar. Our conservative estimate is office space demand might only return to 85% of what it once was. That’s a 15% drop, which is significant.
Many businesses were caught off guard when the pandemic hit and had to upend operations on the fly. About 57% of Spokane businesses say they have already made significant changes to their lines of products and services or were very or somewhat likely to do so. And 67% say the same for making changes to their pricing model. Brick-and-mortar retailers have invested in e-commerce platforms to convert to internet sales. Restaurants and catering business have pivoted toward delivery models to survive, with some operators getting into food packaging and processing.
It’s important for businesses to continue exploring alternative markets and new products. We just approved a credit for a microbrewery to expand its bottling operations. Two years ago, the vast majority of its sales were to bars and restaurants. Now the brewery can expand at a faster rate and get its products to clients where they are rather than sell mostly through bars and restaurants. Find where you can adapt your business model to fit the market.
Reflect, Move Forward
With 2020 almost in the books, it’s a good time to reflect with purpose and be clear-eyed on the challenges and opportunities in the year ahead. This year showed many businesses they weren’t prepared for a pandemic, but who was? What counts is the hard work Spokane companies have done to reposition their companies and remain vigilant and flexible as we head into the new year. Here’s to gaining a competitive edge.