As every small business owner can vouch for, ups and downs are par for the course when it comes to running a small business. Sometimes, even with a sound business plan, a loyal set of customers and a great product in place, a small business can go through difficult times, due to market conditions or other factors that are out of our control.
Chandrakant Salunkhe, president of the SME Chamber of India, said that over 9 lakh micro, small and medium enterprises (MSMEs) have shut down in the last 18 months. According to a Reserve Bank of India (RBI) report, 1.92 lakh MSMEs were categorised under the Framework for Revival and Rehabilitation of MSMEs between October 2018 and March 2019. This initiative allows stressed MSMEs to seek relief and concessions in a bid to recover from financially difficult times.
These are staggering numbers, which do not augur well. However, uncertainty can be due to several reasons. Many small businesses have been feeling the pain right from 2017 onwards. Now there are other issues that they need to contend with, which includes rising inventory costs, lack of consumer demand, and a growing liquidity crisis. A recent IFC-Intellecap report reveals that the MSME sector faces a credit gap pegged at Rs16.6 lakh crore. With all these challenges, it is no wonder that this is turning out to be a tumultuous period for small businesses.
In these challenging times, every small business must take a few precautionary measures to stay safe and remain afloat. Now is not the time to take undue risks. Here are a few tips that will help owners of small businesses stay healthy and survive these difficult times.
Conserve cash: While this is perhaps the most obvious tip that is reiterated all the time, it is also the most important piece of advice you will ever receive. Every small business owner should assess his financial situation and diagnose the current fiscal health of his business. It is crucial to remember that in difficult times, cash is well and truly king. This also means that you need to create an emergency cash fund, as a matter of priority. If you are struggling to put together this fund, then it is important to find an additional income stream to help you tide over this difficult period. Do not dip into this fund except in case of an actual emergency. As a small business owner, if you are beginning to find it burdensome to service your existing business loans, then you should speak to your bank and ask for an immediate restructuring of your debt.
Keep a tight rein on inventory cost: Ensure that your inventory doesn’t block all your money. Also make sure that you receive the most cost-effective pricing from your suppliers. Negotiation and bargaining are going to be incredibly important when it comes to keeping costs down. Try your utmost to develop these two skills as they will stand you in good stead. Shop around to see if you can find suppliers that offer a product that is more attractively priced, without compromising on quality. Try and also find ways to minimise shipping and warehousing costs.
Prioritise retention of old
customers: Sometimes a bird in the hand is better than two in the bush. This adage is very apt in the context of how small business owners should deal with customers. Instead of focusing entirely on trying to increase your customer reach and bringing in new customers, what can you do to ensure customer retention? Can you entice loyal customers with special offers and discounts? Are you investing in maintaining high-touch communication methods with your clients? Define clear success metrics on this count and strive continually to exceed them.
Stick to core competencies: This is a difficult one. As a small business, it is always very tempting to diversify the business and add a variety of new products and offerings to your existing line. However, this isn’t the time to do so as this strategy could ultimately hurt you in the long run. Drop the extras and instead try to focus on what you do best as a business.
Don’t slash the marketing budget: In difficult times, small businesses mistakenly reduce their marketing spend or sometimes eliminate it altogether. In fact, the opposite should be done. This is the time when you need to actually increase your marketing efforts.
Manage cash-flow efficiently: When business is slow, you need to focus intensively on effectively managing your cash flows. Getting paid on time is one of the key ways to maintain good cash flow for your business. Look at incentivisation or discounts as a way to ensure that you are paid on time. This will also enable you to pay your suppliers in a timely and efficient manner.
Planning for tough times is never a fun exercise; however, it is compulsory for every small and emerging business. Advance preparation will ease many of the challenges that can arise during difficult times. A period of economic sluggishness has set in and one does not know how long it will last. The good news is that putting in the hard work now and having a concrete plan in place will stand you in good stead in the future. If you run a tight ship during difficult times, you will be better prepared to benefit from the growth phase as soon as the dark clouds disperse.
Run a tight ship to stay afloat
* Create an emergency corpus for your business
* If you are having trouble servicing your loan, try to get it restructured
* Bargain with suppliers to bring costs down
* Retaining loyal customers is more important than trying to acquire new ones
* Diversifying far away from your core competency could prove costly
The writer is co-founder and CFO of Open, a neo-banking platform for SMEs and start-ups