Good Advice for Small Business During a Pandemic
[This article was originally published by the Lawyers Daily in March 2020]
The economic impact relating to the Covid-19 virus will be felt by every corner of the world. There is simply no escaping it. As a lawyer, I have many small-business clients who are now asking “What should we do to protect ourselves during this unprecedented time?”
The answers are never simple because this is uncharted territory and some businesses will be affected more than others. But I do have some tips – consider it general advice – for those running a small business during this tumultuous time:
Start documenting any losses (including losses in shares) you may be suffering because it could lead to a deduction later in terms of an allowable business-investment loss. The Income Tax Act contains an entire apparatus to convert what would otherwise be a capital loss to a non-capital loss which can then be used against regular business income. So, it is wise to keep track of any businesses you have invested in which may not survive this downturn.
Document debt forgiveness you may be granted, if any, as this may be deductible as well. There are provisions in the Income Tax Act that allow a forgiven debt to be deducted in certain circumstances. And ensure that all relevant documents are maintained in an orderly way.
Try not to over-extend credit facilities. This may be considered common sense, but tough decisions need to be made at a time when the optimal methods to dispatch scarce resources become vitally important. During this process, it will make a whole lot of sense not to over-extend the business by utilizing excessive unsecured credit. I have seen too many cases where businesses are unable to recover from such behaviour. It is a good idea to contact your banking representative in order to negotiate better terms on your credit facilities, if at all possible.
Reduce all non-essential expenses, but not marketing because of the opportunity to increase market share right now. This may depend on the type of business at issue, but keep in mind that what we are going through right now could be a time when you can secure a larger market share by spending a few additional dollars on marketing. If you are strong and financially solvent, then the marketing expense during trying times like these can make a lot of sense.
It’s more important than ever to maintain meticulous books and records (i.e., unpaid accounts to collect later, unpaid accounts you must pay later). This is an obvious piece of advice, but one that many businesses do not follow. There are many reasons why businesses may allow the state of their books and records to suffer during trying times. What are they? For starters, it could be a lack of communication with your bookkeeper or tax preparer that could allow feelings of hopelessness to at least temporarily guide business behaviour. Stay on top of this and you will thank yourself later.
Take good care of your customers. Most small businesses obtain their customers from referrals, so call your current customers to see how they are doing. In fact, this is an especially good idea right now. Send them a quick email showing your concern. Or pick up the phone and call them. After all, we are all in this together. Doing this might seem obvious because most people who run successful small businesses do it all the time. Under any circumstances. If you are one of those people, then the advice is to continue.
The bottom line is that the Covid-19 pandemic is going to be a very tough time for most, if not all, business. But particularly small business. The sad reality is that some, and quite possibly a great many, simply will not survive. But taking reasonable precautions and behaving in a circumspect fashion will at least ensure that you are on the right page financially once we collectively begin to dig ourselves out of this hole.