MSME Quality Hub

Introduction:

For any kind of economic slowdown, small businesses are heavily impacted than the corporates. The effect this slow down lasts a long time after the impact and entrepreneurs are finding difficulty to get recovery in the short term. There are many articles can be found speaking about the steps to be taken during the recession time. But, only a few speaks about the preparation ahead of recession. By preparing yourself ahead of recession with learning from previous slowdown creates more strength to face the recession with confidence. This article talks about how the upcoming recessions can be leveraged to sustain and improve the business.

“Recessions are Good, If you know how to differentiate your service from others.”

Surender Gowthaman

A sailor can survive turbulent weather at high sea levels, but what he needs is, a strong ship to withstand tough conditions. Similarly, an entrepreneur, facing challenging circumstances in business needs cash flow. The ability to have more cash flow determines the ability to withstand and face the recession ahead. To maintain healthy cash flow, small businesses need to adopt the following eight methods.

1. Keep sufficient cash in hand
2. Stop unnecessary spendings
3. Change policies
4. Take business decision based on cash flow
5. Know customer’s pain point
6. Develop competitive edge
7. Safeguard employee’s benefits
8. Invest only on constraint resources

1. Keep Sufficient Cash in Hand:

A business needs to have a minimum of 6 months’ worth of its operating expenses in the bank as a cash reserve. to avoid closure of the business incase of no earnings for longer period. The operating expenses includes employee salaries, rent, bills, maintenance costs, or any other necessary business expenses necessary to keep the business alive.

2. Stop Unnecessary Spendings:

Any expenses that is not going to add value for the long term sustenance could be added to your list of unnecessary expenses. Evaluate all these expenses and cut back on non-essential purchases or services that do not directly contribute to business operations or growth. For example, a consulting firm temporarily suspends its monthly subscriptions to non-essential travels during a recession, reallocating those funds towards more critical expenses like marketing or employee training.

3. Change Policies:

This is one of the critical steps as many of the entreprenuers might take it differently. Changing policies are not for saving cost, but to increase the revenue. For example, opting for additional shifts or flexible shift to increase the business time, providing extended services like home based services, end to end connections, after service options etc. requires strong approach in changing policies. The change in policy must improve the sales without impacting other processes. The change in policies can also include, adjusting return policies, payment terms, or credit extension practices to minimize financial risk. For example, a small manufacturing company revises its credit terms from net-30 to net-15 for customers during a recession to improve cash flow and reduce the risk of late payments.

4. Take Business Decisions Based on Cash Flow:

Prioritize decisions that positively impact cash flow, such as negotiating better payment terms with suppliers, increasing sales volume through targeted marketing campaigns, or optimizing inventory management to reduce carrying costs. For example, a software startup focuses its marketing efforts on promoting annual subscription plans over monthly subscriptions to improve cash flow predictability and reduce billing overhead during a recession.

5. Know Customers’ Pain Points:

Understand your customers’ changing needs and challenges during a recession to tailor products or services that address their pain points effectively. Today’s customers are very much willing to pay higher prices for premium services that shortens the delivery time, reducing waiting time, immediate replacement and same day services etc. For example, a landscaping business conducts surveys and gathers feedback from clients to identify cost-saving landscaping solutions that appeal to homeowners looking to reduce maintenance expenses during an economic downturn.

6. Develop Competitive Edge:

Invest in innovation, quality improvement, or unique value propositions that differentiate your business from competitors and attract customers even in challenging economic conditions. For example, a local bakery introduces a new line of gluten-free and vegan pastries to tap into niche markets and differentiate itself from other bakeries during a recession, attracting health-conscious customers.

7. Safeguard Employees’ Benefits:

Prioritize employee well-being and retention by maintaining essential benefits such as health insurance, retirement plans, or flexible work arrangements to foster loyalty and productivity during uncertain times. For example, a small tech startup continues to offer remote work options and mental health resources for employees during a recession, recognizing the importance of work-life balance and support for staff morale and performance.

8. Invest Only in Constraint Resources:

Allocate resources strategically to address bottlenecks or constraints within your business operations, such as upgrading key equipment, hiring skilled personnel, or enhancing supply chain efficiency to maximize productivity and profitability. For example A manufacturing company invests in advanced machinery to increase production capacity and efficiency in its bottlenecked assembly line, enabling faster turnaround times and reduced production costs despite economic challenges.

Conclusion:

By implementing the lessons learned from these survival techniques, entrepreneurs can turn adversity into opportunity and emerge from recessions stronger than ever before.