JumpScale's Josh Knauer on MarketWatch

Original article published on MarketWatch.

Published: May 21, 2020 at 5:32 p.m. ET

By Josh Knauer

Just because state officials say you can reopen doesn’t mean you should

If customers aren’t ready to walk in, is it worth reopening quickly?

An entire generation of start-ups, young entrepreneurial ventures and small businesses could be wiped out as the coronavirus pandemic begins killing off businesses. Unsurprisingly, the rallying cry to reopen businesses is growing. But it will be more disastrous if we reopen too soon.

What is “too soon”? Before the curve is flattened, of course. There are certain conditions that should be met before reopening the economy, such as those proposed in this Harvard Business Review article. Currently, it’s a free-for-all among the states. Some states are moving forward without even meeting the minimal White House guidelines for safe reopening.

There is also confusion as to which guidelines businesses are supposed to follow: those from the federal, state, county, or local government. “Too soon” is any time before COVID-19 safe workplace practices and protocols are established and implemented. And that’s the case in many places.

So, even if a business is technically permitted to open, it doesn’t mean the owners should jump at the opportunity. In fact, it could lead to the collapse of the company altogether. Why? Well, several reasons.

First, it’s important to note that many businesses that are still functioning have revenue down about 50% to 70% vs. last year. So cash flow is already tight. Next, you have to add in the cost of starting your business back up — sanitizing, physically readjusting the space to meet social distancing rules, buying inventory.

Then once you’ve finally reached the top of that hill to get up and running (and here’s the key), customers will not return at the same level. Research is showing that people are holding on to their money even when they can spend because everyone is afraid of the economic collapse. Cash flow becomes an even bigger issue because a business is likely spending way more than it’s bringing in.

Plus, a recent Qualtrics poll indicated two out of three workers don’t feel comfortable returning to the workplace. Most businesses and work environments are not set up for social distancing and other necessary procedures. There are potential liabilities to businesses reopening and exposing employees to undue health risks. Many states, including Iowa, are dropping all furloughed workers from receiving unemployment benefits as part of their “too soon” reopening mandates. Whether it’s safe or not, workers are being forced to return to their workplaces.

Forcing workers into potentially unsafe conditions and encouraging consumers to return is forcing a broken system back into place. This is likely to lead to another government-mandated shutdown as COVID cases spike again. We’ve seen this happen in at least six countries already like Germany, China, and South Korea, where businesses began to open, an increase in infections emerged, and new clampdown measures were imposed.

Even if businesses can survive that initial cash expense and maybe get by on some revenue from opening, they’re going to collapse when cases spike. They’re just simply not going to have the cash necessary to cover the costs of shutting down and reopening when the second spike is done. They will either run out of cash on hand or not have enough revenue to remain solvent. The cash-flow vulnerability of small and medium-size businesses is an Achilles’ heel in the best of times — 50% of them have only 27 days of cash on hand, and 25% have enough for only 13 days.

Individual businesses may actually be taking a more considerable risk by investing in starting back up and then having to close down again by state mandate.

The unfortunate reality is that we are about to see a massive number of businesses go under, whether due to staying closed too long or reopening under the wrong conditions. It seems counterintuitive, but businesses are better off just staying closed until the scientific criteria can be met for safe reopening.

My advice to business owners is to go on unemployment and get all of your employees on unemployment as well. (This is the first time that independent contractors and business owners can go on unemployment.) Plus, there are additional Payroll Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) funds that have either forgivable aspects (for open businesses) or super-low interest rates (for businesses that may remain closed). Those two safety nets should be enough to cover basic living and business expenses for many in the short term.

Yes, it does mean that employees will have to be unemployed, and people are not working, which is frustrating and terrible from a psychological perspective. But more businesses, and inherently their employees, will survive in the long run. Because once they do open at a safe time, cash flow should be stronger as consumer confidence will have increased, and money wouldn’t have been lost opening and closing again. This long-term positive gain is better than bringing in some cash in the short term.

Of course, this is not to say that businesses can’t pivot their current operations to adjust to the current restrictions in the meantime. A restaurant I’m working with is now offering one-hour delivery on grocery store staples like milk, eggs, and toilet paper. A photographer I’m advising is taking family portraits on people’s porches.

So what can businesses do to position themselves to survive and possibly even thrive this inevitable culling?

• If your business can stay virtual, keep it virtual for as long as possible (predictability and stability in operations).

• Find product or service adaptations to make your business relevant as a solution for pandemic problems, whether for people or businesses.

• Pay attention to cash flow like never before. Figure out your finances and prioritize expenses down to only the most essential items.

• Slow down and breathe... seriously! Be ready for a marathon, not a sprint. There is no “end” to this pandemic until there is comprehensive testing, and vaccines are created and widely distributed.

• Research local, state, and federal funding options as well as private-sector funding (such as loans and grants). There are many other community lending options for local businesses available through CDFIs, community banks and community foundations.

• Think through other financing options, such as selling assets, taking on debt, or negotiating an investment

If you have to make cuts to your team, approach it with kindness and empathy. If possible, help workers with access to financial and job placement services. And try to be clear to employees with a plan you have in place. Businesses survive and thrive on predictability. If you know doors will have to stay shut for three or six months, but you can hire everyone back and articulate that. Employees can plan accordingly and will have confidence that the business will survive in the long run.

Ultimately, the ripple effects of impact from this pandemic will be felt in all sectors beyond the immeasurable and tragic loss of human health and lives. And while it’s completely understandable that everyone wants to get “back to normal” quickly, the rush to reopen businesses without careful thought and consideration is a mistake that will likely cause millions of businesses to close permanently.

Josh Knauer is a serial entrepreneur who sold his market analytics company to Nielsen. He currently is an adjunct professor at Carnegie Mellon University, an executive in residence at Columbia University Technology Ventures/NYSERDA and a general partner at JumpScale, a [wellness-focused responsible investment consulting] firm. 

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