The Government of Ghana went to the IMF and signaled that the economy is struggling. We are in for a prolonged period of economic difficulty. Inflation is high, the cedi is falling, and prices keep going up.
Running a business in this environment can be very challenging. So, what can you do to your improve the chances of your business surviving and thriving?
Some ideas underlying my suggestions come from a CPA Ireland study into SMEs in Ireland that survived the 2008 economic crash and grew with it. Others are from lessons we learned as a firm in surviving Covid..
Time is of Essence
How will the economic situation affect your business? What can you do to reduce impact? The earlier you tried to understand this and draw up a plan, the better your chances of limiting damage to your business.
Take a hard look at your business:
- Assess the vulnerability of your clients to the economy and the potential impact on your business.
- Analyze your cost. Determine which costs are essential, which you can cut, and what effect cutting will have. You want to cut cost in a way that minimizes negative impact on your business.
- Evaluate your cash position and sources of funding. Will you have money to keep going?
- Assess your competition—what are they doing differently?
Use what you deduce from the analysis to plan.
Check your cost base. What adjustments can you make without risking sales? Costs are under your control; revenue is not. Don’t bleed cash whilst waiting for revenue. To limit cash outflow, you may have to cut costs.
When cutting cost, avoid the option of cutting cost across the board. Cut cost in ways that maintain the core of operations, even if you must reduce capacity. Keep a tight control on cost.
Your goal is having enough cash to meet expenses when they are due. How much cash do you have? What other sources do you have? Can you call on them in times of need?
You may not get credit and other funding sources may dry up. To improve cash flow, you must take several measures. Some measures to ponder are – cost cutting, improving collections, increasing sales, better purchase terms and asset sale.
Find a combination that works for you and monitor your cash position.
People make anything in business happen. Assess your people. Do you have people in the right roles? Which roles are key, which are not? Make tentative plans.
Engage with staff and explain the challenges, how you will meet them, and ask for their input and help. The goal is to bring employee costs to a level that allows the business to weather the difficult times. You may achieve some of the reduction through staff concessions, or by cutting some staff.
With people, the tendency is to hesitate in acting. Act as soon as you can.
Marketing and Customer Relations
In tough times, marketing and sales assume high importance. If you can’t get a sale, then you won’t have cash. Examine your system for attracting prospects and closing deals. You must focus everyone in the business on how to get and close sales. Other people in the organization not directly involved in sales can affect sales, so it is important that actions across the organization support sales.
There are different aspects that you may have to consider. Some of these are:
- Pricing and terms of sales
- Events and promotions
- Changing the product or product mix
- Looking at new markets
In such times, you must be intentional about marketing and closing deal. Protect the marketing budget and cut it only if there are signs of waste.
Adapting the Business Model
You must be open to change and adapting your business model. Here is an example of adapting a business model.
Sales have gone down considerably in a business that sells drinks. The owner is an excellent cook, so she introduces food as a complement to the drinks business. She has adapted her business model to cope with the situation.
Without taking too much risk, what changes can you make to your business to generate cash? You shouldn’t rush into anything without careful assessment and piloting.
The difficult economic situation is not temporary. If you carry on business as usual, you risk going out of business. You must assess the situation and plan how you will cope. The emphasis is on ensuring that you don’t run out of cash, so you buy time to adjust your business model if needed.
We have suggested some areas to consider. Find measures that are appropriate to your business needs. Cash will be scarce, so take early measures to conserve cash.
Do you have systems that give you timely and relevant information? A good information system is vital. For a small business, a simple accounting package can provide good and timely information.