7 ways to protect your small business from an economic slowdown
The COVID-19 pandemic has caused an economic slowdown globally. The situation is difficult for all the businesses irrespective of their size, industry, or the geographical location they operate in.
The businesses most severely impacted by this downturn are small and medium-sized businesses.
There are a few sectors that are still flourishing in these difficult times — for example healthcare, SaaS-based companies, packaged food, online courses, etc.
But for those who have not been so lucky, we will discuss how to prepare for a recession, including the seven practical steps you can take to soften the impact of this economic slowdown on your business.
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How to prepare for a recession
India has entered its first economic slowdown in 40 years. While recessions are beyond any business owner’s control, a recession doesn’t have to sink your venture. By following these strategies, you can increase your chances of staying afloat until the downturn is over.
1- Focus on what you do best
Trying new things and being innovative is what businesses do to grow. However, in the given market condition when the economic slowdown is looming and financial stability is uncertain, it’s a better idea to bank on the products and services that you are very certain of.
Even if you sell a bouquet of services or products, every business has something they’re known for.
What’s your best-selling offer? Channel your energy and efforts to selling more of those best-selling products and services.
You can promote your winning products through new channels or to a new audience.
You can also add variants of your offers (like a basic, popular, and VIP variant of the same product or service), or even introduce several payment plans to make it easier for customers to buy from you.
2- Shower attention on current customers
Another smart tactic during an economic slowdown is to focus on your existing pool of customers. As you may know, gaining a new customer can be five times more expensive than retaining the old one.
It would be a good strategy to focus on current customers, making sure their needs are met.
Apart from the cost of acquisition, the closing rates for existing customers (60-80%) are, on average, higher than the new customers (10-30%). It is better to spend your time trying to sell more to the customers you already have, than to try selling anything to people who don’t already know or trust you.
3- Consider new ways to deliver your goods or services
In the scenario when people are not going out for shopping and maintaining social distancing, businesses need to explore new delivery channels to overcome this objection.
Start offering contactless delivery, contactless payments (PayTM, GooglePay, Aadhaar/AEP) and other safety measures.
For example, few companies have partnered with local grocery stores that people are already accepting delivery from to deliver their items.
Some companies have gone further to make deliveries through drones.
4- Step up your marketing efforts
Social distancing has transformed the way people buy. From grocery to gadgets, everyone is buying it online.
People are spending more time online and developing new habits, and trying new things.
For businesses, it simply means they should invest more in marketing, especially online marketing.
Here are a few things you may do:
- Create a website to help more people find you
- Send emails to your past and present customers to let them know how you can help
- Create sales pages for your products and add the Facebook pixel to them to retarget your visitors on Facebook (proven strategy)
5- Manage costs wisely
Failing to manage cash flow is the main reason why small businesses shut down.
When cash inflow is limited, cost cutting is the only way you can manage your finances and have positive cash flows again.
To do that, simply revisit every cost you incur and ask these three questions to yourself-
- Is it required?
- Can it be eliminated?
- Can it be minimised?
The only cost you don’t want to cut is marketing or promotions. Businesses that survive recessions watch all other costs like a hawk, but continue to spend on promoting their goods and services.
6- Work from home
Allowing your employees to work from home can cut down the fixed costs (e.g. electricity, internet) of your business.
Work from home may not work for every business model and it’s not an easy task.
But, if there’s any trace of possibility it’s worth giving it a try.
Yes, productivity is a matter of concern among remote teams. Many SaaS companies offer solutions to improve the productivity of employees and teams working from home.
7- Apply for financial help
The Government of India has taken initiatives to rescue the small and medium-sized businesses by offering relaxations like collateral-free loans, subordinated debts, and equity infusion through its Funds of Funds (FoF) scheme, allowing banks for one-time restructuring of loans.
Other than these, here’s a list of schemes you can consider:
- Pradhan Mantri MUDRA Yojana — apply here
- Credit Guarantee Fund Scheme for Micro and Small Enterprises — apply here
- National Small Industries Corporation Subsidy — apply here
- Credit Linked Capital Subsidy Scheme for Technology Upgradation — apply offline through your bank
- SIDBI Make In India Soft Loan Fund For Micro, Small and Medium Enterprises (SMILE) — apply here
Private companies like Google are also offering loans to merchants in India.
Small ventures at greater risk
In a survey of more than 600 companies conducted by CARERatings, it was found that small businesses have more stress than larger ones.
“Business activity is unlikely to touch pre-COVID-19 levels before March 2021, and there is an urgent need for the government to step in and provide the much required ‘push’ to the economy.”
Below are some of the reasons why small and medium businesses are feeling more heat in this economic slowdown.
- They have limited savings to fuel their working capital cycle and cover their fixed costs with limited business activity.
- Dependence on migrant labourers. They’re still suffering as most of the migrant workers have still not returned
- The lack of awareness and inability to get benefitted from the loan moratorium and other scheme announced by the Reserve Bank of India (RBI)
- Lack of guidance on pivoting their business and adapting their business operations according to the changing times
These are some of the many other factors that are responsible for the everyday death of small businesses in India due to economic slowdown.
Don’t let the economic slowdown close your doors
However, most of the businesses have been adversely affected due to this global economic slowdown. Recovering from this slowdown may take a longer time and businesses need to make considerable changes in business strategy and focus.
We have talked about various methods that can help you sustain through these difficult times. I hope you have some clarity to move forward. Hold tight untill the storm passes by — it always does.