Yet another round of lockdown has begun in the country, as the pandemic rages with renewed vigour this year. People are bracing themselves to protect the health and wellness of their loved ones on one side. But on the business and livelihood side, the uncertainties are piling up again.
However, this time we have one powerful advantage, the knowledge from last years’ experience. With some clear and smart steps taken at the right time, small and medium businesses can insulate themselves from sinking into a recession. If businesses can stay afloat through the difficult months, then they can get back to the high growth trajectory.
Recession is a term used more often in the macro-economic sense while defining the decline in a country’s economy. However, in the context of a business it refers to making losses over consecutive years (or quarters). This is usually due the fact that revenues are dipping but the input costs and debts are still high.
We have compiled a set of important steps which a business owner can take – home entrepreneurs, small shops, factories and establishments, service providers – to make themselves recession proof.
1. Work out your financial position accurately
Before we get down to solving a problem, we need to define it clearly first. In order to figure out how to stay afloat in the bad times, a business owner needs to define his financial position in terms of:
- Revenue (monthly/quarterly)
- Input costs – material, manpower, marketing and so on
- Debt liabilities
- Tax liabilities
- Profit / loss (After tax and debt repayment)
2. Make adequate arrangements for working capital
Working capital is the minimum amount of funds you need to meet the unavoidable expenses every month. In the bad times, new business orders may be hard to come by. But you need to put in enough money to meet your existing orders.
Working Capital = Manpower cost + Material and operations cost + debt + taxes.
If your revenues are covering this amount, then you don’t need to worry about your business getting into a recession.
When revenues are down, business owners often take a bank overdraft or a business loan to cover their working capital deficit. Both these instruments have very high interest liability. So beware.
You may consider using chit funds as an alternate source of working capital. For known expenses that you are likely to incur in the short to medium term, you can plough in your excess revenue into an appropriate chit fund scheme for a tenure of 2-3 years. So when it’s time for the actual expense, your money is ready to use! No debt, no interest.
If in the mean-time, you are faced with a financial emergency, the chit fund gives you a quick liquidity option to tide over the crisis.
3. High debt is unsustainable, minimise your debt liability
Mounting debt is one of the key reasons for businesses shutting down. When the revenues are low during the bad times, it is still possible to stay afloat, if the business is not in deep debt. Because, even if you don’t make a single rupee in revenue, you need to repay your debt. The interest liability adversely affects your working capital position. Any payment defaults may result in massive penalties, making it unsustainable to keep the business running during prolonged periods of low revenue.
Chit funds are a much better way to manage your capital needs. Chit funds by design are a dual purpose financial instrument. They are an easy mode of saving as well as borrowing.
In a chit fund scheme, even if you pull out the entire amount early, your monthly payments cover both the principal and interest. Thus leaving you debt free at the end of the tenure.
4. Expand your product portfolio according to the situation
Adapt to the situation quickly and shift your business focus accordingly, that is the best way forward during tough times. Hotels can’t allow dining in? Then shift your focus to home deliveries and online order taking. Dip in sales of formal shirts? Then shift to leisure/home wear. Being flexible in response to dynamic circumstances around you will ensure your business never goes into recession.
Prepare backup plans in advance. Given the skill sets of your man power, work out what other business areas you can diversify into. If required, train your resources in advance, preparing them for new business ideas.
5. Invest in technology and IT infrastructure
The one reason why our business world hasn’t come crumbling down in these Covid times is that IT technology has enabled people to work from home, work from anywhere. Investing in IT infrastructure is not a “Nice to Have” requirement anymore for business owners, it has become a mandatory part of business.
A laptop/smartphone, good internet connection, required software licenses, an attractive website/app, social media interfacing, online order taking and billing software – get this infrastructure ready. This will help you scale your business to new customer segments. It will also help in greatly minimising operational cost.
Taking your business online is not restricted to the good times, so that you can expand your business multifold. It works remarkably well during the bad times too. It helps to keep your business afloat with minimum man power, that too mainly working home.
6. Build lasting customer relationships
When businesses move from customer transactions to customer relationships, then they earn the trust and good will of their customers. Instead of just treating a customer as a source of revenue, invest in them. Keep in constant touch even after the current transaction is complete. Understand your customer’s needs and design your products and services as per their changing needs. Be open to their feedback and be prompt in your responses.
Especially in times like this, even your customers must be facing a hard time. So empathise with them, build lasting relationships. It may be possible to work joint action plans to tide over crisis situations – like sharing manpower, altering delivery schedules and so on. Good customer satisfaction is the key to a lasting business success.
Shanthala Chits is in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 25 year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments. Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.
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