12 tips to surviving a recession
We are all aware that we will probably enter a recession as a consequence of the Covid-19 lockdowns. The economic predictions have been varied, from bouncing back to the worst global recession since the late 1920s.
The Bank of England policy report for May 2020 declares that the UK economy shrank by 3% in the first quarter of 2020, and a subsequent 25% in the three months to June. Technically, this counts as a recession.
We have all seen headlines declaring jobs losses, companies closing down and stories of business owners struggling against the odds. Whether we bounce back or the recession deepens, as business owners, we need strategies for survival.
Usually one would recommend that any SME has around 2-3 months operating costs as a reserve in the bank; however, Covid-19 has seen many businesses burn through their contingency and coming out of lockdown with little in reserve.
Although people are returning to the high streets, consumer confidence isn’t responding in the same manner as pre lock-down. Restaurants are complaining that they do not see enough diners, retailers are reporting more people turning to the internet than before, the estimation is that Covid-19 has accelerated the take up of online shopping by almost 10-years. So, if you’re an SME business owner, what actions can you take to reduce the impact of a recession?
1. Ensure you get paid on-time
Cashflow is one of the critical measures of any business. Recession usually places strain on customers, suppliers and your own business. Many SME’s fail to survive a recession, not because of lack of customers or orders, but because they hit a cash crisis.
Ask yourself this question, how many customers do you need to be late in their payment before you hit a critical point of survival?
To encourage your customer, you could offer them a discount for early payment or the opposite and apply a charge for late payment. Whichever method you choose, ensure that the invoice makes it clear.
However; there is an alternative to both of the above and that is factoring. Factoring involves selling your accounts receivable to a third party. Doing so means you get paid a per cent of the value of the accounts receivable, usually between 75% to 80% of the invoice totals and the third party chases the invoice amount from your customers.
There are a lot of negative beliefs about factoring, most of which are nonsense and I will write a post covering more of this subject soon.
2. Decrease costs
If you mention a cost reduction initiative, most people would usually equate this to redundancies; however, this is not necessarily the case.
As a business grows and develops, so too does it processes, the way you run the business.
These processes often grow organically and develop what we describe as fat, unnecessary steps, double entering of data and information, double handling of goods or products, etc.
Lean is a concept developed at Toyota Motor Manufacturing in the late 1950s and looks at reducing the waste or fat within processes, whether physical or digital, meaning you do more for less. It can look at reducing your costs, help you become more responsive, reduce your inventory and increase your quality.
You may think that Lean is something only for larger businesses, and they certainly look for hiring Lean experts during times of recession, but some of the best Lean companies are SMEs. There is a multitude of literature about Lean, so gaining knowledge and driving your initiative is not impossible. Alternatively, look at hiring a consultant and though the thoughts of the cost involved can put you off, carry on reading this article, and I will address that.
3. Focus on your core products/services
1896 and Vilfredo Pareto (an Italian economist), noted approximately 80 per cent of the land was owned by 20 per cent of the population. Since then, this ratio has been applied to many things but is common where quality is concerned.
However, it is often true of sales. Approximately 80 per cent of sales come from 20 per cent of products and services. The 80 per cent of products or services that only generate around 20 per cent of your sales revenue cost you to maintain.
Think about whether you should go forward with these products or services or can you ditch them in favour of the 20 per cent that makes you money?
Focusing on the 20 per cent means you can reduce inventory, concentrate your marketing on what really sells and make your processing easier.
Many businesses have hundreds of thousands of pounds locked up in stock. Shoes in warehouses clothing in shops or piles of roofing slates in a yard, if they ain’t selling, then they are dead money.
Do not sit on dead money; find a way of releasing some or all of the value of slow-moving stock. Maybe a competitor can make use of it, discount it through an offseason sale, or if it is particularly old, can you sell it for scrap?
Customer expectations are higher now than ever and you must deliver quality. Data, data, data is the key to understanding quality and defining the Voice of the Customer (VoC). Through identifying the VoC you can gain an understanding of what your customers want and how your products or services fulfil that.
The story goes that in the early days, Dell computers used a consumer panel to see how easily they assembled their computers. Dell wanted to see how easily the average consumer could connect the monitor, tower, keyboard and mouse. To Dell’s shock, one customer found getting the items out of the box difficult, turned the opened box upside down and emptied the content on to the floor. Imagine glass, plastic and wire scattered everywhere, but Dell learnt one lesson, they needed to make the packaging more consumer-friendly.
Whether this story is true or not, there is a lesson for us all, through understanding the VoC you can improve your products/services and therefore it’s appeal to end-users.
Too often, marketing budgets are reduced during a recession, though this has never made sense to me. A recession means that there are less customer, spending less money. You need those customers and not have them go to your competitors, but how can you get them if they do not know you exist or what you offer because you are not marketing yourself?
Marketing is more important during a recession than at any other time, but this doesn’t mean you should go out and blow your reserve capital on a massive campaign.
Think about how you can target your typical customer more; get to understand the return on your marketing investment at every stage of the process and try and look at how you can leverage new forms of marketing. If your online marketing consists of just a website, ask yourself how you can use social media to promote you and your business? If you have already mastered social media, are you following or commenting on other companies blogs that could benefit you? Don’t just follow people on LinkedIn because you see them as an influencer, but ask yourself who should you connect with that can help you reach your target customer?
When you started your business, you probably spent some time reflecting on what makes your products or services different from your competitors.
When was the last time you thought about this, chances are not enough?. Too many SMEs are busy running their business to spend time reflecting on their USP. After all, your USP was established on day one and still useful today.
Well, “yes” it probably still is, but what if it isn’t because your business has moved on and charged? You may have new USPs besides your original, or you may need to adopt new ones.
Even if your USP is still valid, reviewing and seeing whether you can highlight new possibilities can help you better define your offerings to your customers or enable you to differentiate yourself to your competitors.
8. Become agile
There is a lot spoken about agile, especially where Project Management is concerned, but here, I am talking about the ability to change quickly to market needs and customer demands.
A small engineering company may be able to gain new customers by having an agile approach to rapid prototyping. We have all seen articles in the Newspapers and LinkedIn about companies quickly changing course and manufacturing ventilators or face masks rapidly, this is agile and could be a boon to your business or even your new normal.
However, to become agile, you need to develop a series of processes that allows it to happen. Get the framework wrong, and it could rapidly backfire and do as much damage to your business than it brings, after all, few customers will stay with a supposed agile company that doesn’t deliver.
9. Empower your workforce
Empowerment of your workforce is critical, both in daily business and for an agile framework. Giving people key deliverables, ownership of delivery, and the right tools to get on with the job can free you up to do more marketing, networking and sales.
I find it difficult when I come across companies that employ highly qualified and skilled people and then choose to over-manage them or even micromanage.
Think about how many tech companies operate; they trust their staff.
They have to trust the programmers to write the code. Allow graphic designers space and time to be creative and the marketing team to develop a promotional strategy. I have oversimplified things here, but I think you will get my drift.
Dissolving some responsibilities can pay dividends to both your time and health. Empower those around you and see just how much your employees can fly.
10. Strategic Alliance
Can you partner with other companies that, together, you can offer complementary services or goods, share marketing or leverage R&D costs and resources?
You may have heard of large companies making strategic alliances, but it can work for SMEs too. A property developer might develop a strategic partnership with a mortgage broker, especially as it might help people struggling to raise a mortgage. Likewise, a bakery might align itself with a sandwich delivery firm to offer cakes alongside cheese and ham sarnies. An approach like this could increase sales for the bakery and profits for the delivery company.
11. Engage the services of a consultant or coach
Yes, I do have a vested interest in this; however, haring consultants or a coach can help you with some of the tactics written here, not just formulating them, but help you and your business adopt and integrate them.
Consultants can bring new thinking to your business or help turn things around when projects and deliverables get stuck. A good coach can help you formulate your thoughts and focus on those things you may be struggling with or finding alien.
If you are going to employ a consultant, ensure they have a good track record, can demonstrate deliverables. Check how they charge, daily rates are excellent but do they commit to cost reductions that will be around x3 your investment?
Is the coach you hire trained and qualified, many are not. There are no standards for governing bodies for coaching, and I have seen many YouTube adverts for unqualified people stating that they can train you to become a business/executive coach.
12. Build a cohesive strategy
Now we have looked at different tactics, it is time you decided on what would best work for you and with your management team develop a cohesive strategy.
Develop a road map for your business and wok it hard, but do not just loosely pick topics from this list and haphazardly apply them, because I will guarantee your chances of making them work for you are slim.