BANGALORE, INDIA: In the past the slightest hint of a financial crisis has sent businesses into a panic, with owners looking around to see what could be cast aside to
recession-proof the business.
For many nervous managers the first step is the introduction of wholesale cuts across the board in a bid to remain profitable. It should come as no surprise in this scenario the first casualties were often staffing and investment in new technology. The aim of the cost-cutting exercise was to weather the downturn in the economy until growth returned.
Yet there is no need for rash actions or to ignore the economic reality. Small to medium businesses (SMBs) can continue to grow in a recession. The key is to avoid panicking and implement strategies to improve business processes. SMBs who react quickly and in a strategic manner can gain a competitive advantage over larger enterprises in tough times.
When the economy picks up, smart SMBs that have refined their internal processes and controlled costs are in an excellent position to take advantage of the upturn. The opportunities available in a slowdown can help to boost market share when the recession turns.
Here is a survival guide for SMBs looking to capitalise on opportunities during a recession.
Will the examination of a SMBs business processes save the company in tough times?
Forewarned is forearmed. Conducting a review of your business processes -- internal and external -- will alert you to problems and enable you to plan your response. It means you're less likely to scurry off making ineffective changes willy-nilly.
Owners who are alert to the issues are more able to adapt quickly to the changes in economic conditions and keep their doors open as a result.
Look for internal problems, such as inadequate internal systems, key staff that are not up to scratch or a poor business plan. Pay particular attention to revenue, cost structure, the quality of your business plan and your capital structure.
SMBs who don't conduct a review of their business processes are potential targets for acquisition or to be overtaken as growth returns.
In business it's often the complex processes and sign-offs that require committee decisions, for example, that slow down the simplest of tasks and will leave you scrambling for market share as the economy turns.
Is it wrong to focus on cost cutting during a recession?
Cost cutting in a slowing economy is a necessary evil and a means of returning to profitability. In tough times owners become obsessive about cost. Where can we cut expenses? What staff can we get rid of?
Cutting costs, if done properly, can have a positive effect on your business in a depressed economy. Properly is not running around blindly slashing costs across the organization. This has as much impact on the profitability of a business as burying your head in the sand and hoping everything will go away.
Businesses need to be careful to only cut expenditures that won't hurt the company when growth returns.
SMBs should target costs that tend to creep in during good times. 'Extra' expenditures that can be trimmed include staff benefits such as corporate entertainment, travel, conferences and non-essential club memberships. When good times return staff can be rewarded accordingly.
Owners need to examine all systems to find inherent efficiencies such as savings on ink and paper by only printing necessary documents and using both sides of paper for copying.
Should SMBs invest in new products or services in an economic slowdown?
Innovation is the driver of performance, growth and stock market valuation in good times and bad. The question as to whether an SMB survives a recession comes down to a business's perspective on the economic reality.
Businesses which thrive in a downturn continue to innovate, knowing that a hot product or essential service will be in great demand whether in a recession or not.
The difference, however, is in a recession consumers and partners generally look for a product which is better and more cost effective.
What drives a sale is saving money rather than value add. A focus on innovation ensures an SMB is capable of meeting market needs.
