January 29, 2021

Author: Charisse Conanan Johnson

COVID-19 has fundamentally changed the way in which businesses operate. These four steps can help you survive this crisis, and eventually thrive.

• Racial disparities affect access to capital, which has put Black-owned businesses at a disadvantage during the COVID-19 pandemic.
• Plan out the next 12-18 months of your business to identify opportunities in the market and for pivoting.
• Determine how much capital you'll need to execute on your business plan, and tap into federal loans, local grants or venture capital to secure those funds.

Given the lingering effects of the COVID-19 pandemic, small-business owners will need to secure enough capital to sustain and grow their businesses.

The COVID-19 pandemic has also exposed racial disparities in business performance. In August 2020 the Federal Reserve Bank of New York reported that “weaker cash positions, weaker bank relationships and pre-existing funding gaps left Black firms with little cushion entering the crisis: even the healthiest Black firms were financially disadvantaged at the onset of COVID-19.”

As a result, it's even more imperative for Black-owned businesses to have concrete strategies for securing capital. Taking the following steps can support business owners who have made securing capital one of their top priorities.

1. Figure out your go-forward business strategy.

Strategic planning can seem counterintuitive during any crisis, and COVID-19 is no different. That said, focusing your time and efforts to plan for the next 12-18 months is critical.

When you can clearly articulate your vision for your company, you can figure out where market opportunities exist, shed distractions and understand where you will have to pivot.

Even though your strategic choices may appear limited, entertain new ideas and rethink what the business can accomplish in its current environment.

2. Determine how much and what type of capital you need to execute on the strategy.

Once you determine the go-forward business strategy, build a simple financial model to reflect the strategy. The model will have a certain degree of uncertainty. While this may feel unsettling, the uncertainty is normal, especially during a pandemic.

Your model will give you a holistic picture of the financial implications of your strategy and your specific capital needs (e.g. emergency funds and working or growth capital). You should have a keen understanding of the following:

1.        The key revenue drivers and expense levers in your business

2.        The minimal amount of revenue necessary to minimize any external capital needs

3.        The level of expense needed to retain key employees and, ultimately

4.        The amount of cash you will have on-hand in 12-18 months in a best-case and worst-case scenario of your go-forward strategy

3. Secure the capital.

Once you know the dollar amount that you need to execute on the strategy, the next step is to secure said capital.

In addition to the recent federal Paycheck Protection Program (PPP) that offers forgivable loans to small businesses negatively impacted by COVID-19, many states have announced their own emergency funding pools for small businesses. For example, California announced its plan to provide grants between $5,000 and $25,000 to small businesses from a $500 million pool.

If your business requires growth capital in the form of venture capital, private equity or fixed debt from Community Development Financial Institutions (CDFIs), you can elevate your chances of securing this capital by drawing out your growth potential over the next few years. Separately new funds that specifically invest in firms led by people of color are springing up around the country. Keep in mind that investors want to minimize their risk and maximize return, so entice investors by presenting a comprehensive go-forward vision and displaying an understanding of the trade-offs.

As you prepare to apply for funding, ensure that you have the most up-to-date required documentation and due-diligence records. One of the biggest issues with securing federal and state grant dollars has been the lack of preparation and appropriate documentation.

4. Execute on the strategy.

Once you secure capital to fund your go-forward strategy, you must execute. Asking yourself these key questions can help you determine what that will look like for you.

• What do my funders or investors require of me in exchange for the capital received?
• What talent do I need to execute successfully?
• In addition to my internal team, what do I need from my external advisors, Board members or partners to succeed?
• What triggers should I put in place to signal that an alternative strategy is needed?
• What specific milestones over a predetermined period of time should I set to achieve the go-forward plan?

Securing capital is very important in the short-term, but your ability to execute will determine your businesses’ long-term success.

Photo: Getty Images