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Personal Finance

How business thrive in depressed economy

businesswoman
Your costs should never be higher than the revenue. FILE PHOTO | NMG 

In a recent PricewatersCoopers (PwC) Annual Global CEO survey, more than half of the respondents believe that the rate of global Gross Domestic Product growth will decline in 2020. Only 27 percent expressed optimism in the prospect for revenue growth. This is a reflection of the CEOs low confidence in their own organizations’ outlook, drawn from different territories across the globe.

Tough economy comes shrouded in a dark cloud of uncertainties and is typical of declining consumption, high cost of living, high rate of unemployment and loss of investments among other reasons. In business, this condition eventually leads to decline in profits or lack of and the domino effect is often disastrous. Some businesses end up downsizing, while others close shop.

Against this backdrop, it is not always gloom and doom for everyone. History has taught us that even in the most depressed economic conditions you can still thrive as an entrepreneur. Some of the biggest household names today started during the US great depression in 1930s. Disney, HP, General Electric and Microsoft all started during a period of severe economic meltdown. These and many others withered the storm to become one of the greatest business empires in the world.

In every disaster, some survive and thrive while others perish. In the business world, it is the same. When some companies are closing due to economic hardships, new ones are coming up and others expanding. Which one do you want to become? Needless to say, no one wants to perish. We all want to thrive and prosper. So, what can you do as a business to survive and thrive in the hard times?

Retreat, Restrategise

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In a war, when the terrains become difficult for the fight, the best action you can take is to retreat to reenergise and re-strategise. It is often a very effective way of dealing with an unprecedented change in the operating environment. This approach provides an opportunity to develop a new perspective that is aligned to the new circumstances.

A new strategy that is tailored for the tough prevailing economic conditions can help you sail through. You will need survival tactics that can cope with reduced sales, high costs of doing business and a host of other adverse market conditions.

Cash is King

You may have heard that cash is King; this doesn’t make more sense than during the economic hardships that is often synonymous with cash crunch. To survive in this period, you need cash more than never. You must make sure there is no liquidity problem at all. To achieve this, sell on cash and carry basis and if you must sell on credit, collect all the money from your debtors within the shortest time possible.

Tighten your credit terms so that you can convert your sales to cash within the shortest time possible. As a contingent plan, open a line of credit even if you might not need it. Get an overdraft line open with your bank just in case you might need to borrow on a rainy day.

Contain expenses

Spend the cash wisely, and this means that you must contain your costs. It is the time to separate the wheat from the chaff. All the unnecessary costs must be eliminated, and money spent on things that create value for your business. This is not the time to embark on huge capital expenditures unless it is a golden opportunity to buy out a depressed but valuable business. Remember I told you to open a line of credit? That was so that you don’t miss out on any valuable opportunity.

Keep customers happy

Remember I said cash is King? Customer is the real King. During this period, the last thing you want is to lose, is your clients. You need your customers to be on your side. Keep them happy by meeting their needs. Even in hard times, do not compromise on the quality of the product or services you offer. Remember, just like you, your competition may be targeting your clients. Keep them closer to your heart and make the relationship personal. Happy customers will be loyal to you and they will stick with you throughout the turbulence period.

Improve product

When the market is shrinking, there is only one shrinking pie to share with everyone. To get a bigger share, you must be competitive. Be the best above the rest. Endear yourself to new clients by offering better than your competition. Identify the gaps and then improve the product or service to make it more attractive than your rival, you will end up converting your competitor’s customers to be yours.

Pay suppliers

Pay your suppliers in good time; they are very important stakeholders in your business. Research has shown that creditors can easily bring down your business, especially if you are in the goods business whether manufacturing or simply trading goods. Unlike in the service industry, your creditors are mainly your suppliers of the goods that you sell or the raw materials you need for production and if the supplies fail, then you are in deep trouble.

Open credit lines

If you are experiencing difficulties in paying your bills, like it often the case during the economic turmoil, the best strategy is to engage your creditors. Agree on the credit terms and the payment plan that is favorable for you while keeping the credit lines open. This is a smart way of financing your operations. Pay them consistently and they will supply you consistently. Do not be attempted to switch to a new supplier and run away from the old debt. If you do this, you might experience a boomerang effect which might cause the loss of credit line and possible compromise of supply quality.

Good stock inventory

Inventory management is another area that requires prudent management approach during the difficult time. You don’t want to end up with too little and not too much. The optimal stock level should be just enough for your sales. This is not the time to have dead stock. The conversion rate should be all time high. You can leverage on the fast-moving goods that you are sure will turn around quickly.

In a nutshell, the crux of the matter is to stay afloat during the storm. How do you do it? Take care of your topline by making sure there is no loss of revenue. Remember your Kings. It is Customer and Cash. With these two on your side, your will pull through. Keep your cost of doing business at bay. Your costs should never be higher than the revenue. Lastly but not least do not bite the hand that feeds you. Keep your suppliers happy. Pay them.

The writer is Head of Finance at Zamara Group.

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