Adjusting in Good Time Can Minimize the Damage
Three months ago, a chama invited me to facilitate its weekend retreat in Naivasha.
Members of the chama are small business owners, and they each employ between 5 and 23 people.
Among them were owners of hardware shops, bars and restaurants, barber shops, mini-markets, and bookshops.
They had planned the weekend retreat to bond and to have fun, but they set aside one afternoon to share experiences on how their businesses were coping with a sickly economy.
Some said their sales were declining, others said they were experiencing cash flow problems, but all agreed their businesses may not survive if they did not make adjustments.
"What kind of adjustments?" I asked, and here is some of what they said:
Accept the situation
Don't deny that your business is struggling. If revenues are dwindling, customers are not paying, or you are struggling to pay suppliers, it's time to tighten your belt. Accepting that it is not business-as-usual will help you respond quickly and effectively.
Don't lie to yourself that the problem will go away soon
A depressed economy can take three to five years to recover. Since you don't know how long the current cycle will last, prepare for the long haul. Take measures that will ensure your business remains afloat for as long as necessary, and keep a close watch on economic trends so that if things get better or worse, you can adjust accordingly.
Don't quit. Businesses that stay afloat during hard times have a head start when the economy improves. In turbulent waters, the most important thing is to keep your head above water. If you give up, you'll drown, and that might be the end of your journey.
Learn from others
A bad economy affects everyone. Find out what others are doing to stay afloat, and see if you can borrow some of their techniques.
Keep accurate data
Track the performance, costs, and profitability of your business from day to day; and use this data to decide what you should continue doing and what you should stop. Which items are fast moving? Which ones are not selling? Which products have good margins?
Rent is a constant expense, and it has to be paid even when your business is not making any money.
Moving to a cheaper or smaller premises will reduce your overheads and free up some cash for working capital. If your customers like your work, they will not stop buying from you just because you downgraded your premises.
If you are offering a service that does not require your customers to come to your premises, give up your office space and work from home.
Close some branches
If you have two or three shops, consider consolidating all your operations in one shop; but develop strategies for reaching out or delivering to the customers of the closed shops. Explain to customers why you have had to scale down and agree on how you can continue serving them.
Put your business online
Depending on the nature of your business, putting your business online can help you operate without the overheads associated with renting premises.
Protect your cash flow
It is the lifeblood of your business; and, without enough of it, your business will grind to a halt. Insist on cash-only, and, if you must give credit, it must be to creditworthy customers. Keep proper records and a close watch on your cash flow. This will enable you to respond quickly if there are problems.
Don't give credit to government institutions
This especially applies to county governments. They often don't pay, or they take very long to do so, If you get that a large order from a government institution that will be paid in 90 days, consider the impact it will have on your business if it is not paid.
Don't put all your eggs in one basket. Selling a few products makes your business vulnerable. Introduce new products and get rid of the ones that are not in demand.
Cut down on salary expenses
Negotiate with your staff to accept pay cuts. Explain to them that it is a temporary measure meant to help you all navigate the hard times but assure them that their pay status will be restored when things get back to normal.
Lay off some staff
If you can't pay them, don't keep them; but try your best to help them transition peacefully to a life without a regular job.