Four Ways To Ensure Your Company Will Survive A Market Downturn
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The current coronavirus pandemic has hit markets hard, and fears about the future are mounting. So, what’s your action plan? Because the markets may not be in your control, but to a large extent, you do have control over the future of your company.
If you’re not sure whether you need to prepare your business for the long-term impact of the COVID-19 crisis, consider the following questions: does your company have a culture of adaptability? Is your workforce happy and united? Do your outgoings predominantly drive income? Is your profit/loss sheet stable and predictable?
With this in mind, here’s how to protect your company from the detrimental effects of four common business oversights.
Oversight #1: You aren’t adaptable or agile
Agility is defined as the ability to understand, mobilize, design, and respond quickly. A company that’s able to rapidly adapt to a change in circumstances and steer itself in a new direction has less to worry about than one that’s stuck in its ways and slow to adapt.
The coronavirus outbreak has already shown how agility can make or break a company. It’s the fitness clubs that quickly switched to virtual classes, and retailers who increased their online presence before closing their physical stores that have managed to find new economic opportunities at a difficult time.
So, how agile is your company? It’s common to overestimate a business’ adaptability- that’s why reflection is key to determining the true agility of your business. Think back to the last small change in your company? How quick and effective was the response and how widespread was buy-in? Now consider the last large change that affected your business. How did you all respond?
Now, the question becomes: how can one be more agile? Agility is something that must be embedded in the culture of a business to work. It must be demonstrated by those at the top, who must lead by example to achieve buy-in from everyone else.
According to Willis Towers Watson, agility is both a way of thinking and doing. Therefore, to be truly agile, your company must adjust how it thinks and how it works. It should focus on delivering value to the customer, work is short cycles (with continuous feedback), define clear roles and responsibilities for team members, and see the value in considering ideas from everyone in the company.
Oversight #2: Your staff morale isn’t as high as you think
According to a global workforce study by Willis Towers Watson, employees in the Middle East are far below the global average when it comes to likelihood of staying with their employers. In fact, when asked about their long-term plans, only 24% of employees in the Middle East said they would like to work for their employer until retirement. The same study also showed that just one third of employees in the Middle East are highly engaged in their jobs.
Could these figures apply to your company? And, more importantly, do they even matter at a time like the present? It’s true that at the beginning of a period of economic uncertainty, anyone employed is likely to be happy with simply having a job. But as a recession continues and times get tough for a business, disengaged and unhappy workers tend to start looking elsewhere. In fact, data from the 2008 recession has shown that at the peak of job losses, large firms lost up to 59% more of their workforce than normal.
Employee surveys suggest that lack of communication is one of the top reasons employees leave their jobs. Furthermore, 47% of surveyed employees in the UK felt that their managers do not communicate with them sufficiently. With this in mind, the best way to prevent the unforeseen loss of most of your workforce during a downturn is to communicate openly with them on a regular basis.
Take the time to sit down with them and ask them how they feel. You may hear some things you’re not prepared for, but the key to an engaged and loyal workforce is acknowledging their opinions– whether you agree with them or not. Don’t just ask about what is making them unhappy, ask them for the solution that would make them feel valued. Then take action.
Oversight #3: Your outgoings don’t contribute to direct sales
Office space, office equipment, employee salaries, insurance, employee benefits, raw materials, professional memberships. The list of expenses for a business is endless.
But if the majority of outgoings on that list don’t directly contribute to revenue, you may be headed for trouble during a market downturn. Of course, there’s no magic number that all companies should aim for when planning their expenses– acceptable profit margins vary between industries. However, it’s important to keep your business as lean as possible when heading into tougher economic times.
According to a study published in the Mediterranean Journal of Social Science, businesses that budget for the future at least once a year have a 36% chance of survival, whereas those that budget for the future on a monthly basis have an 80% of survival.
This is a key reason why it’s important to continuously review how much your company spends on expenses, and adjust your budget accordingly. Begin by defining the actions that directly contribute to your annual revenue. Then review your business expenses for the last year, and identify which led to these actions and which did not.
Of the expenses that didn’t bring in money, pinpoint those that can be eliminated and those that are needed, despite not contributing to income. Of these, consider cheaper ways to meet the need that’s currently satisfied by that expense.
It’s not an easy exercise. Few businesses spend money they think they don’t need to. But to survive a potential recession, it’s vital to tighten your purse strings where possible.
Oversight #4: Your finances are not stable
It’s normal for a business’s finances to fluctuate a little throughout the year– some seasons are busier than others, and it can take time for new companies to start making a steady income. But if you’ve been in business for several years, your finances should be steadily progressing, and they should show clear annual patterns.
What do your company accounts show? If they’re not stable, you’ll need to address this. An effective way to stabilize your books is to stay several steps ahead of your finances. This involves:
- Analyzing what it takes to make your product/service profitable
- Establishing a clear follow-up process for leads
- Setting and enforcing clear payment terms and conditions
- Creating a marketing plan that uses your funds and time efficiently
- Managing any credit for your business very carefully
Are you ready for the rest of 2020?
No one knows exactly how the coronavirus pandemic will end, but one thing is clear, it’s going to place significant pressure on the Middle Eastern and global economies. If you’re currently crossing your fingers and hoping the markets will turn, it’s time to try a new strategy.
Begin with the four approaches outlined in this article. Because raising staff morale, streamlining your outgoings, stabilizing your finances and adopting an agile culture are four of the most effective ways to ensure that your company survives a downturn.