How SMEs can survive recession

Monday, September 5, 2016

Nigeria's Small and Medium Enterprises (SMEs) have become an endangered species as over 200 of them have closed shop due to the downturn in the economy of the country. That the country is going through recession is no longer debatable with over 56 manufacturing companies shutting down within the same period, but their lamentations came to a head when the Federal Government confirmed that the much dreaded recession is here with us even as Nigeria, the largest economy in Africa after the 2014 rebase, lost its position to South Africa.

So how can businesses survive a downturn that is both deep and more protracted than anyone ever imagined?

Even in the good times, it is believed that a third of SMEs close shop after two to three years. This simply means it has now become more than necessary for SMEs to sit tight and hope to survive the raging economic storm. The following suggestions may be buffers for small firms to survive the present recession:

Resist panic: Go through your finances checking what you have to pay out, what your order book looks like and what you're owed. Get the facts before you worry.

Work out where you can make savings: This could be staffing levels. No one likes to make people redundant but some firms tend to over hire in the good times. Could you hire people as you need them on short-term contracts? Rationalise your stock, renegotiate your contracts with your suppliers, hire better people at lower costs.

Are you spending on things that don't make a real difference: Travelling to meetings instead of phoning or using video conferencing, using expensive business premises when you could work from home? Sadly the Christmas parties may have to go but make sure your staff know you appreciate them.

Saving money with energy efficiency measures and reusing and recycling: Cut down on your fleet of cars

Maximise your productivity: You need to sell product to customers. To do this, spend more time with your customers finding out what they need and what will keep them coming back to you. Work on ways to sell more to existing customers. How will you get the biggest return for time spent? Remember, it is cheaper to keep existing customers than to find new ones. Know who your competitors are and what they're up to: In the downturn, more people become unemployed and some will set up businesses. You can find more people doing what you're doing and chasing less demand.Having a competitive advantage is even more important in recession than in a boom. Compete on service and quality.

Cutting prices isn't the only way to increase demand: Can you make your product more attractive without a lot of extra cost? Could you deliver? Delivering to local customers on your way home would cost you no extra but would add value. Or if you already deliver could you be more flexible – deliver when your competitors won't.

Could you attract customers with special offers? Don't forget that not everyone will spend less and those who do may cut back on other products and buy yours instead.

If you're lucky enough to be able to invest, get ahead of the game for the upturn. Can you buy new stores or premises? Revamp the ones you have? Recruit talented people others have let go? Invest in better services maybe even with more staff? Reduce the odds of sales going down and lead the recovery.

You do have to make sure you get paid on time or your cash flow will suffer.

Is there as much money in the bank as there should be? Make sure you have a good financial control system and controller who chases up invoices, makes sure they're paid on time and closes orders to non-payers.

Networking with others for vital information on your line of business is also vital to your survival at this critical period.