How Should SMBs be Unlocking the Post-Lockdown Phase
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Small and medium businesses have time and again walked through fire and survived recessions, proving their resilience. However, COVID-19 is not just any regular financial recession, the magnitude is much bigger. As a small business owner, if you think you can work hard and rebuild your business easily with more efforts once the lockdown is over, you may be biting more than you can chew. This extended lockdown period is the time to plan and work out how you could possibly survive.
Recovery runway for businesses
As an SMB owner, be prepared for the worst. The most important aspect is to understand the type of your business and the impact it will have due to the lockdown and what will be its recovery runway post lockdown time.
A short recovery runway could be anywhere up to 3 months for businesses such as cleaning, beauty and wellness, dentists, extended non-essential items such as electrical goods, home utility products, among others, that will have pent-up demand. For these businesses, the recovery curve would be V-shaped wherein the business has seen a dip but would see a rise immediately.
A mid-term recovery business would bounce back in about 6 months when consumers will start their discretionary spending such as in retail, restaurants, cinemas, MICE business and the likes. These businesses would see a U-shaped recovery curve. The demand would be flat initially but it would recover in a few months.
For the rest of the businesses, recovery will take longer, say around a year. These would be export and import businesses and their ancillary businesses, auto, hospitality, travels and tourism and alike. They would see an L-shaped recovery curve wherein their growth would be nearly flat for some time. In fact, if there is some change in international trade policy, some import and export businesses may take even longer to recover or may not recover at all.
Are you capitalized enough?
For most of the small businesses, daily cash flow is the lifeblood. On average, these businesses have around 23-27 days of cash in reserve. At present, monitoring the cash flow is most important. Ask yourself, what is the financial war chest of your business like? Can it see you through for the next 3-6 months or a year? The basis that, start planning what expenses you can manage or cannot.
To start with, reduce all non-essential expenses, freeze hiring and halt large commitments and investments. Make a list of priority expenditures and try to set money aside based on the timing of when they are due.
Another important aspect is to take a hard look at fixed versus variable costs. While fixed costs are generally inflexible, but see if you can either reduce them by at least 20 per cent or defer 50 per cent of them for the next 6 months. Also, variable costs should come down by 80 per cent.
The capital in your bank will be the difference between staying in business and shutting it down. Once the lockdown is over, that is when the real anxiety period will really start. In the last 22 days, business owners may not have felt a real cash crunch. While in confinement, there were fears of health and business, but once the shutter is up, sleepless nights, anxieties and stress will set in. How prepared are you to deal with it? What steps are you taking now to manage the post-COVID crisis businesses will face?
For SMBs and non-funded startups, their suppliers, vendors, landlords, banks may demand monies immediately. Here SMBs will be at a real disadvantage. Large companies—whose vendors or ancillary companies are usually SMBs—and corporates can delay payments to suppliers to conserve cash. The same tactic works in reverse for small businesses whose vendors are big groups and would need to pay as soon as possible. So it is better to talk to them today and work out new terms or even find new and cheaper suppliers.
This will be the most strategic and the hardest decision-making to be done as people are really what make an organization. You will need to balance between layoffs, terminations or furloughs of employees and re-engineer to build a critical team to keep the wheels rolling. You also need to spell out clearly that there will be salary cuts, no appraisals, no incentives, and soft payouts.
However, the most important part is to manage the people who are with you. How do you plan their productivity? Most people may be working remotely for the first time, and therefore setting expectations is what would get things done. Once the lockdown opens, you would need to focus on sales and getting money in. Also, from vendor negotiation to finance management needs will have to be taken care of, you can see if that can be done now. Remember, everyone is a warrior at this moment. Regardless of what roles people had in their departments, now everyone must come forward and perform multiple functions to keep the business going.
Consumer acquisition and engagement
Businesses need to start finding additional revenue sources. Be creative with sales and marketing. Identify the low-hanging fruits that can earn money. Think creatively about how and what adjustments you can do. Add new products that could bring in revenue and take off some of the products with long paybacks. For example – Delivery for restaurants, Online learning for private institutions, etc.
The new lifecycle of business growth
Now maybe also a good time to figure out what you want to achieve in the next quarter. Obviously, whatever roadmap you defined for 2020 at the beginning of the year would no longer be feasible. Now is the time for setting out business projections for the next quarter and make short-term goals. Plan 3-4 months ahead, align your resources accordingly and achieve the targets.
One can constantly be in doubt and so, as clichéd as it may sound, look for a mentor who will play a very important role in helping you vet your tough decisions. From time to time, you will need a second opinion as you will be facing a lot of dilemmas once the business wheels start for real.
SMBs can help other SMBs
We all have expectations from the government and what it can do for us. But what if it does not happen? You need to be more inclusive. SMBs can help each other by putting their heads together about how they could be more open-light and build better and more collaborative business models. Creating small region-based mini SME clusters may be very helpful as businesses can understand what strengths they all have that could be shared. It will be helpful in negotiations with vendors, better use of facilities, warehouses, resources or pooling operational capabilities.
At the end of the day, it is the power of your mind that is going to help you sail through this situation. Do not assume, just go out and pitch. Recessions have always brought forth new market leaders. People who will be able to demonstrate their capabilities to take risks and fight adversity will be the eventual winners.