Over the past two years, the US federal government has given billions of dollars to businesses, including through Paycheck Protection Program (PPP) loans, Economic Injury Disaster Loan (EIDL) grants, and Employee Retention Credit (ERC) tax rebates. The good news is that many businesses are now finding they’ve survived or even made a profit last year thanks to these loans and grants.

But those government programs are now over. Inflation is on the move, cash from banks is becoming more difficult to obtain, scrutiny from lenders is increasing, and it is an employee’s market with immense labor movement particularly in the retail and service industries. On top of that, the supply chain is unpredictable, and the virus that started it all is still among us.

CEOs and board members of small and medium enterprises can do little to push the entire economy beyond COVID-19, but they can certainly take steps to protect their companies as economic difficulties deepen.

Being Proactive Versus Reactive

Supply chain issues have affected large, medium-sized, and small businesses alike. Not only are container ships backed up, but there’s been stagnation at intermodal transfer sites and logistics terminals around the country, as well. Trucking companies are hungrily looking for drivers. Some business owners who have enough current supply may be waiting to see how this will affect their supply chains. This is much like standing on your porch, watching an approaching tornado.

Middle-market and small businesses have found their costs rising and production limited by shortages of raw materials and supplies. The creativity that allowed many of these businesses to succeed over the past two years should continue to be their driving force.

Boards of such companies should anticipate forthcoming economic issues and guide management to address tighter lending, more difficult vendor credit terms, supply shortages, and possibly even product acceptance challenges as the consumer and business climate shifts.

Being Strategic Versus Tactical

As banks review their lending relationships, small and middle-market companies, with fewer assets on the balance sheet, will be given greater scrutiny. Cash flow shortages will stress business operations. Now is the time for the board to be even more strategic.

In my experience working with clients, some small and medium-sized business boards and executives believe their companies to be too solid to be affected by COVID-19 at this stage, especially if they previously accepted governmental support. They will be proven wrong.

Without the reassurance and aid of government programs, boards should ensure that management strategically reviews their businesses. Hiring at all levels should address staffing shortages, providing flexibility and scalability which is as critical on the production floor as in the front office. Furthermore, looking at the “why” of financial statements is more important than reading the results. Everything that happens operationally in a company flows down to the financials. They are a guidepost to future results.

Whatever excess cash existed at the end of 2021 should be used to pay down debt, restructure internal operations, improve efficiency, and strengthen the balance sheet in preparation for the difficulties that will likely appear this year—including the Federal Reserve raising interest rates to rein in inflation. Every move is critical for the health of small and medium-sized companies in 2022.

Where to Go From Here

When economic winds change, small and middle-market companies must be able to pivot. As the buying paradigm shifts, companies need to review how they fit into the marketplace. Are they an innovator or a low-cost supplier? Both consumers and businesses are increasingly shopping online, searching for alternate products and sources.

The recent passage of the Infrastructure Investment and Jobs Act to help rebuild our national infrastructure certainly provides opportunities for companies of all sizes. Boards need to be farsighted enough to help management determine how the companies they steward may seize such opportunities.

Not all companies are directly in line for contracts. For those that are not, find an opportunity to supply the suppliers. These new government purchases will filter through the economy, and boards should consider how their businesses may take advantage.

Policies and Procedures

There are great benefits to being a leader. Small and middle-market companies should mirror the direction of public will in their business policies. Despite initial cost implications, being an early adopter of stakeholder-focused initiatives will deepen employee engagement. The Great Resignation has created a tightening labor market. Thinking proactively will prompt good employees to seek you as an employer.

Policy review, including as it relates to flexible work programs, job sharing, and diversity, equity, and inclusion issues, can no longer wait for the next board meeting. Changes in employment practices are having a real impact on companies throughout the country. In addition, review of and improvements to quality control standards, credit policies, and internal controls will help every company succeed.

The days of pandemic-related government aid for small businesses are over. Small to medium-sized companies and their boards should continue to think creatively and strategically to not just survive the coming year but grow by taking advantage of unique opportunities that present themselves.

Larry Chester, president of CFO Simplified, served as a corporate chief financial officer (CFO) for more than 20 years before starting his consulting firm. His team serves as fractional CFOs to companies in many industries, from start-up to middle market, providing cash flow planning and other services that drive profitability.

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Larry Chester

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