Financial discipline pays off in recession

BANGALORE, INDIA: For the past few days, Indian stock markets are showing volatile behavior due to global recession and financial debt crisis concerns on international markets. Whether or not this recession meets the dictionary criteria, it is time SMEs tightened their spending.

Financial discipline and cash management are the key to deal with such situations where uncertainty looms large over local and global markets. “Do more with less” should be the mantra for SMEs in order to fight financial uncertainties.

The best way to develop financial discipline is to create a budget for your business. Of course, I am sure all SMEs will have their own budget.

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However, it is time for all to re-look at the budget and see where the budget on expenditure can be trimmed. Make sure you check your business bank account details regularly. Maintain a statement on in-flow and out-flow of funds. Renegotiate with vendors for better pricing. Make all payments within the specified time to avoid extra interest. Avoid taking loans. Try to reduce your daily expenses and stick to necessities.

It is in these times that your finance department can point out the areas where the business can improve, where efficiency can be increased, where to expect more margins and where to curb the expenditure.

As Bo Bennett, American businessman, puts it, “As sure as the spring will follow the winter, prosperity and economic growth will follow recession.” Recession is a normal part of the business cycle and it generally lasts from six to 24 months. So we cannot avoid recession, but we can learn a couple of lessons from it.

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Recession brings the ability to be able to allocate money to more useful things rather than spending on non-essentials. Another benefit of a recession is seeing weaker competitors drop out of the race. Businesses who don’t learn financial discipline won’t survive.