How to refrain from quitting your business during an economic crisis?

Our generation has seen several economic meltdowns that have broken us each time only to rebuild us to emerge stronger and more determined than before. Every economic crisis is difficult to the point that we feel compelled to give up. However, soon we realise that there are more reasons to stay put than giving up. Because we are a breed of survivors.

Yet, for people who are finding it difficult to hold on, here are some practical turnaround tips that you can try at the time of economic crisis.

How long can you survive without an income? One week? One month? Or, one year?

The Covid crisis has created the worst recession in living memory. Consumer Confidence in India has weakened by more than six percentage points due to the resultant lockdown in states. The pandemic has jolted millions of entrepreneurs into the reality of what a financial crisis is all about. So, how will you survive?

Even before the pandemic arrived economists were forecasting an economic recession happening in 2021.  To survive, many companies are reducing the headcount and undergoing numerous cost-reducing measures. However, small businesses have a better chance of surviving than medium or large ones. This is because they can continue their operations even with a smaller revenue stream.

In this article, we will tell you some smart financial strategies to help small businesses survive this economic crisis.

1. Have an actionable plan

Create a marketing-communications action plan to survive the recession. The plan will help you to anticipate things before they happen, rather than react later. You can review the plan once every few weeks to stay on track.

2. Cash is king!

Remember, that your business can be profitable, but still have no cash. Knowing how much cash you have is always important for a company, but it is essential during a financial crisis.

Cash has to be managed very carefully. You need to have a thorough understanding of where your cash is coming from and how it is being spent. Start implementing strategies to keep your cash flow running, and keep a thorough check for any cash bleed. Prioritise bills and negotiate with your creditors if you can’t pay them at one go. Check all overhead expenses and cut back on anything you deem unnecessary.

Don’t ignore the minor losses, because, if unchecked, they can soon turn into major losses. Get your accountant to track and reconcile cash.

You can use Scenario Planning to Improve the Cash Flow of your business and visualise future scenarios. This will help you to account for all the money and make adjustments whenever needed.

3. Reduce your debt.

This sounds very obvious but the lure of credit cards leads us to swipe them for instant gratification. And, at the end of the month, we can’t pay it back. So, keep a track of your debt, and build a separate fund for repaying it.  Otherwise, it will keep on piling up.

4. Plan a realistic budget

One of the top reasons that small businesses fail includes losing focus, cost issues, and running out of cash. These can be prevented if you have a realistic budget in place. Plan a budget considering all factors that contribute to run the business. Based on the needs and wants of the business, you should prioritise your expenses.

5. Review your business plans

While creating your business plans, say at the beginning of the financial year, build in some trigger points. It could be things like, if your business does not achieve certain revenue or sales by a certain date, you would review the plan. Check where your business stands in regards to cash or finance parameters. If the general industry is outpacing your company, then your plans might be redundant.

Try to examine your original plan, a probable scenario, and a worst-case one. When you work through each of these scenarios, you can come across solutions that you had not probably thought of before.

6. Review all contracts

Team up with your lawyer and accountant and review all contracts, paying special attention to force majeure clauses or conditions that are beyond anyone’s control. Review termination rights and consider whether you need to renegotiate any of the terms. If you have a long-term contract with the government, these will continue through the recession, providing you with a steady cash flow.

7. Streamline your operations

Try to improve the efficiency of your processes, as well as the quality of your products and services. Though layoffs are a last resort, you may consider other measures to reduce costs. Can the job of two workers be done by one? Try to eliminate redundancies, extra hours, and paid leave.

8. Make decisions based on numbers

The best thing that you can do for your business during bad times is to have a thorough understanding of financial numbers and projections. Make a chart of projected income and expenses. Even if you start with an estimate that is a little off the charts, that is better than having no plan.

9. Create a product or service that adds value to your customers

The needs and demands of the consumer market have been severely impacted by the pandemic. Consumers cannot live without essential goods and will purchase them regardless of changes in their income levels. Examples of such products include food, clothing, and water. Try to get into consumer essentials or critical repair services-things that are recession-proof.

10. Get help from your Board

If you have a Board, you can create a disaster planning team from among its members. Ideally, it should comprise a lawyer, an insurance expert, an accountant, and an HR person. Get them to review any risk to the business. Try to find out what might happen if your revenues decrease by 25% to 50%.

Independent board members have got a big role to play here.

11. Try to get more business

Try to retain existing customers. Do more market research, and try to get more business from your profitable clients than your clients who do not play very well. Focussing on these clients can help you to quickly increase your sales. Try to contact them frequently by phone or email, till you get an appointment to talk to them.

Recession creates a tremendous opportunity for market disruption. Airbnb and Uber, two unicorn companies, both were born after the 2008 economic crash. Both found ways to disrupt the old business model by getting people to earn through different revenue streams. In times of crisis, you should also try to think out of the box.

12. Motivate your team

In the midst of a recession, when tight budgets, pay cuts, even layoffs are a common feature, some business motivation for your team becomes necessary. Try to motivate employees beyond monetary considerations. Value each member of your team and the contribution that they make.

13. Exhibit Emotional Intelligence

At the time of a crisis, a leader has to connect emotionally with his employees, and dig deeper. You need to understand their feelings before taking significant organisational decisions. Self-awareness is a key trait while navigating through complex business deals.

14. Encourage remote work

The fear of Covid-19 is moving 9 to 5 office jobs towards more flexibility and independence. Risk mitigation, whether it be viruses or natural disasters, is an advantage for remote staff. You can hire temporary workers for short-term projects, and thereby reduce the cost.

15. Go back to basics

One good piece of advice for small businesses that are facing a financial crisis is to go back to their original value proposition. Ask yourself, what is the reason for your being, and what is your true expertise. If you have side-tracked and ventured into multiple unrelated ventures, now is the time to concentrate on your core business.

Winners don’t quit, and quitters don’t win. The pandemic has had a devastating effect on the world economy, and running a business is going to be a challenge on a day-to-day basis. As a business owner, you have to be smart with your money. If you don’t lose heart and follow some of the suggestions that we listed here, you can not only survive but thrive.

Also Read:

1) How to Start a Computer Training Institute?
2) How to Invest Money? Investment Tips for Small Businesses
3) How To Start A Car Rental Business?
4) How to Start a Coaching Institute for English Speaking Class?

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FAQs

Q. Why is liquidity important for my business?

Ans. You need liquidity to pay your bills, employees, and other expenses.

Q. I need to get some work done but I don’t want to hire fresh employees in the current economic climate. What can I do?

Ans. You can outsource staff, and pay them on a daily or weekly basis.

Q. What is the lesson that recession teaches business leaders?

Ans. Recessions filter out weak business models and force entrepreneurs to adapt.

Q. Why do you need to diversify your client pool during an economic crisis?

Ans. If you have one major client, and that client is hit hard by the recession, then you will lose a major chunk of your business. If you have several smaller clients, even if a few of them are affected, you will have a better chance of survival.