Adapting to Covid: Managing Your Resources
(This post is part of a series of 4 key challenges facing small businesses in the pandemic. To get an introduction to adapting your business during covid-19, check out the directory post, or navigate directly to read about moving online, accessing capital, balancing work + home.)
If you’re having trouble maintaining or acquiring resources - you should check out our post on accessing capital. However, if your problem is how to manage and allocate the capital/resources you already have - then you came to the right place!
So, maybe your revenue is declining or you’re not tapping a large enough market and are looking to use your resources for growth. Or it may be that you’ve so far dedicated too many resources to growth and have realized you may not have the capacity to handle it.
If any of that sounds like your situation - it’s all about managing your resources effectively and efficiently. Some of the material we will be covering here may also apply to you if you’ve had to close your doors (whether permanently or temporarily) and have a bunch of capital on your hands (anything from an empty store/space to equipment to idle workers).
In this section we will cover how to allocate your resources effectively between the maintenance versus the growth of your business, adapting your business model or target market for changing consumer behaviors, and putting any idle or inefficiently-used resources to good use.
At Launch Local, we’re all about setting you on the path to do the most with what you’ve got, so let’s get started.
Maintenance vs Growth
Choosing how to allocate your resources can be difficult because of course, you want your business to grow, but at the same time you know you need to have the capacity to handle that growth. It is especially important in uncertain times like these to make sure you can support your current business activities and costs before creating additional costs. Sometimes it can be difficult to decide how to make that split. To be clear - this is about deciding where to direct the effort of your workers’ time + skills as well as your cash and any other capital (e.g. technology, machines, real estate etc.).
Understanding Your Financials
The first important thing to make sure you’re doing in order to be on the right track to making smart decisions here, is to have all your current costs clearly laid out - particularly highlighting your ongoing and necessary fixed costs (i.e. bills/wages that must be paid every month). One great way to do this is to use financial statements.
There are 3 big ones here -
Income statement - (make one)
Balance sheet - (make one)
Cash flow statement - (make one) or (use Shopify's online calculator)
Creating a good income statement will be useful for having a clear view of how much money you’re receiving and how much you’re spending. The statement is made up of your revenue, expenses and profit. If you really want to hone in on where you should be allocating your resources, you might consider a creatively adapted income statement that breaks down the ‘revenue’ section into different revenue streams - i.e. how much money came in from online vs in-store sales or how much money came in through different sales reps/clerks or even broken down by product type etc. It’s extra work, but it may make a significant difference to your perspective on your business operations, especially when cross-referenced with your expenses to see what costs are paying off the most in revenue.
Creating a good balance sheet will be useful for keeping track of what you owe and what you are owed. This statement is made up of your assets and liabilities. This is important because you might find that even if you don’t have a lot of cash to invest in growth, that you’re owed a substantial amount (e.g. from customers) and so can afford to use the cash you have now for growth purposes. Conversely, you might discover that you’ve been spending a lot on growth because you have a lot of cash in the bank, but underestimated your liabilities (i.e. money that you owe or will need to pay soon). Therefore, this statement can be very important for planning how to best allocate your resources. Again, you might consider designing your own here, possibly breaking down your ‘accounts receivable’ into where they are receivable from - e.g. is there one customer or business who always seems to owe you money? Or maybe you have property/equipment that you forgot about or are not taking full advantage of.
Creating a good cash flow statement will be useful for knowing exactly how much hard cash you have available for spending. This statement is made up of cash from operations and investing, as well as any depreciation/appreciation/amortization of capital that needs to be factored in. This is important so you can easily see how much cash is in the bank and make sure there’s enough to fund your daily business operations before allocating any of that cash to growth projects/investments. Referring to this statement will also keep you acutely aware of exactly where your cash is coming from and where it’s being spent.
Even though it’s not required by law, if you are struggling to manage your resources - you might want to consider preparing these statements on a monthly basis so that you always have your finger on the pulse of the health, operations and direction of your business.
If you feel good about your bookkeeping - great - let’s move on to using those numbers to strategize. If you’re still feeling unsure about bookkeeping, you can check out this resource or reach out to the Launch Local team by applying here for our free business services.
Turning Numbers into Decisions
So you’ve got a grasp on your financials - you know how much money is coming in and out, how much available cash you have to spend right now and you know where your money is coming in and leaving from. Now it’s time to strategize.
The first thing you’ll want to do, if you haven’t already, is note down any patterns of spending/receiving that you notice in your sheets. Any particularly popular revenue streams or promising investments or money lost repeatedly to a particular area of business with little or no gain, should all be highlighted and thought through.
That will be the starting point for strategizing allocation of funds. Once you’ve done this, you may want to create a new budget that takes into account what’s worked and what hasn’t and lays out exactly how you plan to allocate your cash moving forward, even if just in the short term (this can always change and most likely will at some point).
You’ll also want to look at your human capital. How are your employees faring? Are there any that stand out particularly positively or negatively? And if it’s negative, why is it negative? Perhaps that person would be better suited for a different function in the business. You want to make sure you are constantly evaluating how satisfied your employees are and how good their work is, because you may find talent in an employee that’s dragging in one area of the business and would be much better suited to another area.
In all cases, it just comes down to knowing and constantly refreshing the following sequence in your mind -
What capital do I have...
...What is the primary function of that capital right now...
...How is that capital performing in that current function...
...Is there another function that would suit that capital better?
…And if there is - weigh out the pros and cons and see if that shift might make sense for you.
For example, it may be that you have 5 people performing a job that could be done by one employee with the right skills and mental agility. You might then consider hiring that employee if you have the capacity and moving those 5 other workers to a different section of the business where they may be even more well-suited or where you need more manpower.
Sometimes, reallocation of resources might even mean changing your business model, expanding your target market or even pivoting your business as a whole. This might be particularly applicable if you’ve had to temporarily or permanently close your business and have skilled workers, equipment or real estate that you’re not sure what to do with.
Let’s take a look at the possibilities here, because they’re vast!
Pivoting + Adapting Your Business Model
Have you ever heard the story of how the giraffe got its long neck? Competition for food on the ground and in shrubs had grown so much, many animals began to starve. After a while, an intelligent few began stretching to reach berries from taller shrubs, then further to apples on short trees and over time, these few stretched their necks so persistently that they developed the longest necks in the animal kingdom: Giraffe.
Is this story true? Who knows, but it demonstrates a good point. You can start off as one thing and in hostile conditions or an environment that’s changed, you can choose to become something else, strategically. Note that the giraffe didn’t go looking for ways to become a bird to reach the trees - that would have been a miserable journey. Rather, it took what it had and stretched it into what it needed. Let’s think about how we can translate that strategy into a strategy for your business.
If you can clearly see that your problem is related to serving too narrow of a market or that the market you once served is no longer interested in what you’re offering or is no longer able to allocate their resources to your product/service, then you might want to consider pivoting your business or changing your business model.
Pivoting
Pivoting your business might look like changing the product or service you offer. But again, we do this strategically; that’s why we call it a pivot and not a full turnover.
Consider hairdressers during the height of the pandemic, in a full lockdown. A local hairdresser might suffer greatly because no one is going into salons anymore and no one is going out anyway, so demand for blowouts drops enormously.
The owner needs to do something - one option is to pivot the business.
Here is a demonstration of how this might be done:
The owner scraps the hairdressing business (at least temporarily) and turns the salon into a home-beauty products distributor.
This is a pivot because employees are familiar with the product area. They know what hair products work well for their clients and the business may already have relationships with hair product brands that might also have other beauty products they could recommend.
The business also has a clientele that they know values their upkeep and beauty processes and so creating a home edition for them will likely not only meet demand but also make their clients feel taken care of, valued and increase brand loyalty.
The business may even incorporate special video consultations and free delivery for their loyal/biggest clients or create special promotions for newcomers or people who share their new service with their community.
A simple pivot here has opened new doors for this small business in the face of apparent doom and gloom and it is still remaining loyal to its customer base.
Adapting Your Business Model
Adapting your business model might look like changing your monetization strategy or who you are selling to and how. Again, you don’t want to stray too far from your mission and values and you don’t want to lose your current customer base, so tread carefully.
Consider a local restaurant, who in the height of the pandemic and full lockdown has had to shut its doors. Traditionally, its tables were filled by local families who sat down, ate, paid and went home. Now, these families are eating at home and they’re choosing to cook instead of order in, because cooking is a fun activity to engage the kids in and they have the time. The business still has customers who order takeout or delivery, but it’s not making enough to pay the bills.
The owner needs to do something - one option is to adapt the business model.
Here is a demonstration of how this might be done:
Whilst the owner may have traditionally allocated resources to accommodating the ‘families’ market, perhaps purchasing crayons and coloring pages for their young customers, he/she may now decide to focus on a new market and payment structure.
The owner sees an opportunity to serve business professionals who are working from home and don’t always have time to engage in home-cooking.
The owner also realizes that these individuals may not be willing to pay for restaurant food as often as the business needs. As a restaurant, the business has traditionally functioned within a D2C business model (i.e. business selling directly to consumers). However, the owner now considers reaching out to other local businesses or employers of large numbers of local residents, to offer business home catering for their employees.
The owner pitches it as a way to keep employees motivated and loyal to their company during the turbulent times of lockdown and offers promotional prices for serving large groups and introduces a subscription service for meals.
The owner also continues to keep its family customer base happy by including what they have left of crayons and coloring books in every first or fifth order by their family regulars.
Simply adjusting the business model and turning the focus, whilst still catering to their customer base will not only improve the restaurant’s chances of staying afloat, but will also increase their customer base for if they open their doors again and the owner may even decide to continue with a corporate arm for their business.
Change of this nature - whether pivoting or adapting your business model - can seem daunting, but with the right strategy and clear thinking, they can be great options for you. You might even consider asking your current customer base what they’d think of the change if you are worried about losing customer loyalty and they may even have some great recommendations for you. After all, they are the people you are trying to sell to.
If you do pivot or change your business model, just make sure to communicate this to your customers and your community. Tell them what’s new, for how long and your reasoning. And if things change - if your store is reopening, for example, make sure to let them know!
Managing Your Resources Key Takeaways…
Use financial statements for a birds-eye-view of your business that will help you understand how effective your current spending is and inform new budgets + spending strategies
Your employees are part of your capital - assess + evaluate your human capital too
Constantly go over - what capital do you have and how effectively is it being used right now?
Pivoting or adapting your business model are two ways to adapt to new/lost markets + opportunities in the pandemic
Hopefully you feel more confident about steps you can take to manage and allocate your resources effectively!
This post is part of a series of 4 key challenges facing small businesses in the pandemic. To get an introduction to adapting your business during covid-19, check out the directory post, or navigate directly to read about moving online, accessing capital, balancing work + home.
If you think you’d benefit from more guidance or help on any of the issues covered, Launch Local is an organization running solely to help small businesses survive through the effects of the pandemic. Our free services range from website design to market research to digital marketing and SEO. And we would love to help you.
Sign up here or reach out to us via email at hello@launchlocal.org and we’ll help you on your way.
Still deciding if Launch Local is right for you? Learn more about our services here or read about how we helped a local apparel store in North Carolina and their feedback.
