The recent coronavirus outbreak and its impact might lead the global economy into a recession if the uncertainty continues beyond the second quarter of 2020. With the escalation of new cases in various countries in the Middle East and numbers touching almost onemillion patients worldwide, the world economy is under a lot of pressure, leading to the loss of jobs. It has prompted governments to work on providing economic packages to help business owners to sustain through this ordeal.
Recently, Dubai unveiled an economic stimulus package for its free zones in light of what has been described as“exceptional circumstances”. It is intended to support the emirate’s businesses, particularly small and medium enterprises.The five-point-plan includes postponing rent payments for six months, a freeze on loan instalments, refunds of security deposits and guarantees, excusing fines for both companies and individuals, as well as permitting temporary contracts that allow the free movement of labour between companies operating in the free zones for the rest of the year.
Many of the small and medium businesses in the UAE are set to emerge from this challenging period stronger than ever. The good news is that there are several steps you can take if you are a small or medium business to ensure that you don’t just survive but thrive when economic conditions are poor.
- Manage cash-flow even more tightly
The key to surviving a recession is to watch your cash flow like a hawk. Run regular cash flow forecasts to estimate how much money your business has coming in and going out. It will help you cut yourcloth according to the resources you have available. The right accounting solution will help you to forecast cash flow based on when invoices are due to be paid,credit notes are to be refunded and also factor in any other recurring income or expenses.
Avoid selling on credit, especially if you are liable to incur VAT onpayments to your suppliers before the customer settles your bill. If you’re in an industry where you can’t avoid giving credit – for example, supplying legal services to a corporate – make sure you aremeticulous and assertive about collecting payments by the due date.
- Cut the frills
If you’re anticipating or experiencing a drop in revenue, cost-cutting can be an effective way to maintain profitability. You could, for example, look at running a more virtual business if you’re in a space like marketing. Rather than spending money on rental and petrol, you can steeryour team and clients towards using online tools to collaborate.
It’s also wise to review the day-to-day running expenses. When did you last switch insurance providers and are you sure you’re getting a value-for-moneydeal? Can you still afford the Friday morning ritual of cappuccinos and croissants for the team? Do you buy stationery and consumables you don’t need?
Unless you are genuinely overstaffed, downsizing your headcount should be a last resort initiative. Laying off people can have a negative impact on morale and customer service, plus, you’ll need to pay retrenchment packages. You’ll also face recruitment and training costs in the future when you start growing again and need to rehire.
- Pivot to a recession-proof sector
If your bread-and-butter business is under pressure, you can look at ways to use your skills and infrastructure to target more recession-proof markets. For example, if you’re running a supermarket, evaluate the pros and cons of getting into the bulk discounted food game. A car dealer can step up focus on repairs and secondhand sales rather than pushing new cars. And if you’re in interior design, an exciting opportunity may beckon in home staging – making houses look their best to facilitate sales ina challenging market.
- Focus on customer service
During a downturn, remember that your customers are also feeling the pressure. They’ll turn every cent over twice before they spend it. The key to surviving the recession is to retain as many of your best customers as you can. Figure out what is important to them and keep delivering the quality of service that they expect.
While cutting costs, try to do so in a way that doesn’t damage the customer experience. If you do face a trade-off between maintaining your standards and meeting the customer’s price expectations, communicate openly about the decisions you are making and how they will affect the customer.
For example, if you’re expecting the rand/dollar exchange rate to affect the costs of the hair treatment products you use in your hair salon, let customers know you’re increasing your prices or switching to a cheaper alternative. If possible, offer them a choice or find out which option works best for the majority of them.
- Get smart and tactical about sales and marketing
Too many small businesses make the mistake of ending all marketing efforts when a recession hits. But the short-term cost-saving comes at the expense of building a strong pipeline of leads and sales for the future. What’s more, maintaining sales and marketing efforts throughout a downturn can help you to grow market share as other companies in your space appear inclined to reduce their spending.
Rather than abandoning all marketing efforts, review your spending to see where you are getting the best return on investment. You might find that it pays off to focus on low-cost digital channels such as search and social rather than print or radio. Tactical executions such as sales, price promotions and discounts can help win dividends in a tough market.
Starting a business in a recession
If you are thinking about starting a business, you don’t necessarily need to change your plans because of a pothole in the economy.Some businesses do well in nearly any economy and can thrive in a recession:
- Accounting services
- Debt counselling
- Financial advice
- Training and education
- Repairs and maintenance
- Discount retail
For some inspiration, remember that the likes of General Electric, Microsoft, Burger King and many more were founded in difficult economic periods. Starting a business in a recession is a trial by fire, but you’ll run lean, develop good habits and put yourself in a strong position to grow when the economy recovers.