How to Combat a COVID-19 Cash Flow Crisis

Budgeting
Now's the time to take a closer look at your finances. // Photo Credit: sturti/Royalty-Free/Getty Images

The coronavirus pandemic has created a financial crisis unlike any other in recent years. And with the federal government's social distancing guidelines extended until April 30 (at least), you may be getting worried about your spa's ability to withstand the pandemic financially. 

In fact, according to the International Spa Association's (ISPA) recent survey of 511 spa industry professionals, 66 percent of all spas' gross revenue are down by more than 50 percent.

Unless you have cash reserves that can keep you afloat for the foreseeable future, it's time to take a closer look at your finances.

Review your financial statements and get a handle on your outstanding debt. Do some forecasts and determine your current "runway"—the amount of money you have in the bank and how long those funds will last you. Once you have a better idea of where you stand money-wise, you can figure out what you will need to do to best weather the COVID-19 storm.

Here are some tips to help you conquer a cash flow crunch.
 

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1. Reduce expenses. 

While it may seem straightforward to "reduce expenses," you should go through your cash outflows line-by-line. Think about it sort of like spring cleaning—but for business finances.

Cut any nonessential costs: both personal and business. See where else you can reduce your rates, renegotiate plans (or switch to a cheaper plan, at least temporarily), or extend your accounts payable.

Take advantage of COVID-19 tax deferments—you now have until July 15 to file and pay your taxes—and refundable credits to bolster your cash.

Consider switching services if you're able to find a better deal. Numerous software and service providers that are offering their technology discounted or free to small businesses in response to COVID-19. And banks are providing relief as well from waiving service fees and penalties to payment deferral accommodations. Get in contact with your financial institution to see what they may be able to offer to you.

Maybe you're only saving $15 here and $30 there, but these numbers can add up and make a difference for your spa.
 

2. Utilize creative revenue-generating strategies. 

While one part of the equation for boosting your cash flow is reducing expenses, the other is increasing your sales. You may be thinking: well, how am I supposed to do that when my spa is closed?

Small businesses have been getting creative around the world to boost their bottom line, perhaps none so much as the beauty, wellness, and spa industry.

Here are some ideas that you may consider exploring:

  • Liquidate your inventory. If you own a salon or spa, chances are you have some degree of a retail component. Launch a (permanent or pop-up) online store, and offload some of those products. Reach out directly to customers, make announcements on Instagram, and blast your email list. You will likely be more successful if you offer some sort of discount, product "bundle," or other promotion. You may even consider offering curbside pick-up or same-day delivery to sweeten the deal.

  • Make a COVID-19 kit. One stylist is offering an at-home color kit for clients. Self-tanning and skincare product manufacturer Infinity Sun recently developed a "Glow Box", which spas and salons can buy at wholesale prices and sell at retail price for a profit. What do you have that you could use to create a timely package (like a spa in a box)?

  • Offer virtual appointments. A More Beautiful You Plastic Surgery (Austin, TX) is offering pre- and post-surgical virtual checkups. In New York City, a facialist is offering online consultations and a bodywork studio is offering virtual self-care sessions. Is there a way your spa can deliver valuable services virtually?

  • Sell discounted memberships. Incentivize membership sign-up by offering a discount. Who couldn't benefit from a little R&R? It's a win for your clients who are saving money in the long-run (and have a little something special to look forward to) and it's a win for you—boosting short-term cash flow, building a recurring revenue stream, and strengthening your relationship with your customers.

  • Pre-book appointments. Reach out to your customers and offer them the option to pre-book for an immediate injection of cash for your business. Christina Pinckney of Dermasugar (San Francisco) is offering both pre-purchases of services and gift cards at a 15 percent discount. “I feel offering a mutually beneficial deal incentivizes more people and helps to foster your relationship with clients even while they can’t see you, and guarantees their return when you open back up,” said Pinckney, a licensed esthetician and certified sugar specialist. You should let your client base know about the promotion via email and across your social channels, as well as front-and-center on your website. Don’t be afraid to integrate pop-ups as well. People are eager to help their local businesses—you just have to let them know how.
     

3. Seek financial support. 

When times are tough, cutting costs and increasing sales simply may not be enough. If this is the case, it might be time to consider business financing. Ideally, you should secure funds before you get to the point where you need them. This is where forecasting comes in handy—it gives you the financial insight to plan ahead.

Under the CARES Act, a $2 trillion stimulus package, a hefty $376 billion, was allocated to supporting small businesses. $350 billion of that has been committed to a temporary Small Business Administration (SBA) initiative established in response to the COVID-19 outbreak: The Paycheck Protection Program (PPP).

Through the Paycheck Protection Program, spa business owners can access 100 percent forgivable loans of up to $10 million to cover payroll and certain operating expenses. Ultimately, your loan amount will be equivalent to 2.5 times your average monthly payroll expenses (you can use this CARES ACT SBA Loan Calculator for a ballpark figure of the amount you can likely borrow). And if you maintain your workforce and the corresponding compensation, the portion of the loan used for qualifying payroll and debt obligations (including rent, utilities, and mortgage interest payments) will be forgiven. Whatever part of the loan amount is not forgiven will carry a flat one percent interest rate and repayment terms of two years. But, your first payment will not be due until you're six months into your loan agreement. Self-employed, independent contractor, or sole proprietor? You're eligible for this program as well. You can learn more about the Paycheck Protection Program, as well as other SBA coronavirus relief options here.

Some local governments are providing grants to small businesses, so check your city's website. Additionally, private companies and nonprofit organizations are offering relief. We've highlighted a few below, which are specific to the beauty and spa industry:

  • Horst Rechelbacher Foundation: COVID-19 Relief Grant: Beauty professionals or students of beauty programs impacted by COVID-19 can apply for financial relief by way of $1,000 grants. Apply here.

  • PBA COVID-19 Relief Fund: The Professional Beauty Association is offering grants of $500 to licensed beauty professionals who are unable to work because of COVID-19. You can use the funding to meet short-term immediate needs, like food and bills. Apply here.


Regardless of whether you're seeking debt-based financial assistance, there are numerous grants which you can (and probably should) apply for. There's no real loss and potentially some cash flow to gain.
 

About the Author: Samantha Novick is a senior editor at Funding Circle, specializing in small business loans. She has a bachelor's degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications. 
 



American Spa will continue to provide top of the line Coronavirus coverage as news surrounding the pandemic emerges. Click here for our full list of COVID-19 coverage and check back daily for updates. Want to share your Coronavirus updates with us? Email [email protected], or connect with us on FacebookTwitterInstagram, and YouTube.
 

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