When one door closes, another opens. The COVID-19 pandemic has forced many small businesses to permanently shutter. But it has also provided new opportunities, especially for gig economy workers and other sole proprietors who were laid off or furloughed during the pandemic.
In fact, the Wall Street Journal recently reported that 3.2 million applications for employer identification numbers (EINs) had been filed in the first nine months of 2020, compared with 2.7 million at the same point in 2019. EINs are needed to start a business.
Here are some critical COVID-19-related questions and evergreen tips to consider if you’re thinking about launching a new business in 2021. After objectively answering these questions, you may decide to proceed full steam ahead, tweak your plan or even abandon it.
The pandemic has altered market conditions significantly. Some of the effects will be temporary; others are expected to become part of the “new normal.” Before embarking on a new business opportunity, ask yourself three critical questions.
1. Will the start-up have staying power after the pandemic ends? The COVID-19 pandemic has created an environment for certain types of businesses to flourish. For instance, if you were in the business of manufacturing garments, you may have quickly pivoted to producing personal protective equipment (PPE). The need for PPE has never been greater.
But the pandemic won’t last forever. To succeed when life returns to normal, you must be able to sustain the business model. In other words, don’t bank on a short-term solution; think about your plan’s long-term viability.
Your business model may be designed to reflect the latest developments around the country. Evaluate whether your offerings are linked to emotional responses of customers or the desire for security. Then consider whether customers will still want — and need — your products or services (or similar ones) going forward.
2. Can your business survive financially until things get back to normal? Some business concepts are expected to blossom after the pandemic ends. In those situations, the owner must evaluate whether the start-up can tread water until the boom arrives.
It’s currently uncertain how long the pandemic will last. While there’s hope on the horizon due to vaccines and case counts, President Biden’s proposed American Rescue Plan would extend many COVID-19-related economic relief measures through September 2021.
In the meantime, take a long, hard look at your business’s current financial results. Even if your business manages to break even, how many more months can you and your business’s other owners survive, based on your personal circumstances?
3. Can you benefit from the current situation to obtain better deals? As you forecast your business’s expected financial results, rethink assumptions that are based on historical data. In today’s volatile conditions, your business may be able to take advantage of economic changes related to the COVID-19 pandemic. For instance, you may be able to obtain a lower rent charge in a commercial building or negotiate more favorable terms from suppliers and vendors than you could before the pandemic. Interest rates are also at historical lows.
The same thing holds true for other business expenses. You may be in a better bargaining position to reduce certain costs due to financial factors affected by the pandemic. Remember, it doesn’t hurt to ask suppliers and vendors for a reduced price.
Certain fundamental business principles hold true, regardless of how the market is performing. Be sure to consider the following tried-and-true “best practices” when starting a business:
Choose your name carefully. Find a name that’s descriptive and easy to remember. Your business will be forever identified with this choice. Don’t just settle for the first or second name that pops into your mind.
Create a business plan. Your business plan should provide the basic structure for moving forward, while remaining fluid. If 2020 taught us anything, it’s to be flexible. Be sure to include comprehensive prospective financial statements. Your financial advisor can help assess whether your start-up’s rewards, in terms of expected future cash flow, will outweigh its potential risks.
Pick the right form of business ownership. Consult with your CPA and attorney to determine the right structure for your business, based on cost considerations, legal concerns and tax issues. The basic choices include sole proprietorships, partnerships, limited liability companies (LLCs), S corporations and C corporations.
Embrace social media. It’s hard for any business to succeed without a strong social media presence. This is a critical, cost-effective marketing tool. Keep up with the latest trends that will create and maintain visibility for your business.
Emphasize search engine optimization. Consumers often start to look for products or services online, so search engine optimization (SEO) is critical to the continued success of a start-up. You’ll want your company near the top of the search results. An outside SEO expert can help improve your company’s positioning and maximize its reach to prospective customers.
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Starting a business takes time, money and emotional fortitude, especially in today’s unprecedented market conditions. Your professional advisors can help draft a comprehensive business plan and evaluate whether it makes sense to move forward — or go back to the drawing board.