South Africa's technical recession was far from a 'technicality'. Consumers, corporates and business owners alike are still feeling the pinch. While SA Reserve Bank Governor Lesetja Kganyago recently said that the 'worst is behind us' and that we would be out of the recession soon. The great news is that the technical recession is over, however, consumer confidence remains depressed. It might not be smooth economic sailing for a while, so here's how entrepreneurs can ensure their businesses ride out the slump.
Build for the good – and bad times
'Businesses have to be built sustainably and with processes regardless of good times or bad,' says David McCall, Nedbank National Head of Transactional Banking, Global Trade, and Investment. Fundamentals are vital and focusing on what McCall refers to as planning, focus, processes, and metrics are essential to steer your business through the hard times.
Keep your mind on your money
For many businesses, a small decline in revenue can mean instant impact on the bottom line and potential disaster. Most businesses, especially SMEs, simply don't have the cash reserves to pad their finances until the economy recovers. According to Forbes.com, there are five key steps that can be taken in the event of the recession has impacted you greatly: Factor in and forecast for worst-case revenue scenarios; formulate contingency plans with senior management so the business can act quickly if revenues decline; create a set of 'early warning signs' for your business so you know when to implement backup plans; be prepared to adjust spending at shorter intervals; be ready to keep bankers, investors and creditors informed of your financial situation. Keeping an eye on cash flow during this time can make or break your business. Be proactive about trimming and slowing down your cash outflows and look for ways to increase the inflows of cash from customers. In addition, focus also on increasing productivity in your teams.
Customer is king
We're all feeling that pinch in our pockets – including your customers. If your business is to survive the downturn, it's time to invest in the relationships you have with your current customer base. Have good customers? Call, email and meet with them as often as you can. 'Don't open doors for [your competitors] by closing down communications with your customers,' writes Paul Spiegelman in Business Insider 'Instead, increase the frequency of communications with your customers.' Have bad customers? Now could be the time to analyse which customers are costing you money and taking up too many resources. End relationships that are negatively impacting on profitability.
Less is more. Even less is more profitable
'When times are good, it's easy to hide inefficiencies within your business,' says McCall. Once you hit rocky ground, inefficiencies and underlying issues can often be unearthed. If a product line, or a service offering, isn't adding value or is cutting into your profits, now's the time to remove it from your business' portfolio. Thoroughly interrogate your cost structure and keep only what adds to your business' strengths. If your customers respond well to a product line, keep it. If something is still in your offering due to history, emotional attachment, or inertia, cull it. While cost-cutting measures aren't fun to implement, it could mean the survival of your business. You might also want to consider outsourcing work that isn't essential to your core business proposition, such as digital marketing, legal, human resources, or accounting.
Survival of the ... leanest?
Steady and nimble will win the recession race. Ensure you cut costs while positioning yourself for a recession-free future. 'Manage effectively,' says Donald Todrin, author of Successfully Navigating the Downturn. 'This means tracking and analysing key indicators, financial reports, and productivity. Get smaller first and more profitable; then grow slowly and carefully.' Todrin also says quality will remain key: 'That's what wins in the long run. Never forsake this principle'.
Competing on cost could be a pricey strategy, adds McCall. 'You have to understand what value you add. You'll lose if you're competing on price, but you have to know what value you add.' McCall says it's important to understand how you can use technology to unlock efficiencies within your business and enhance your customer experience. 'Deliver great customer experience, focus on operational efficiencies and create points of differentiation.'
BONUS – Is a recession a great opportunity to launch a new business?
'Is there ever a good time [to start a business]? Building an asset of value takes five to ten years. If you're thinking long-term, your business will have to survive different cycles throughout its life. I do think conditions will improve,' says McCall. McCall adds that there are always risks in starting a business, but it's important to define and articulate the risk, assess the probability of the risks coming to life and managing the risks to the best of your ability.Suggest a correction