Micro & SME’s operate within inherently competitive environments; exposed to structural difficulties, lack of accessible markets, skills limitations, and limited access to funding. With risks being further exacerbated by Covid-19 the sustainability of SMEs remains questionable. Few SMEs are placed for rife improvement or development, whilst majority will likely suffer under confined conditions. If anything has become clear, it is the need for business to revise and adopt efficient policies and structures.
With an uncertain landscape and inevitable economic decline, what lies ahead for businesses?
A shift in focus…
Businesses need to prioritize and rethink current strategies. They need to monitor cash flows, maintain healthy cash balances, and they need to adapt to a new age. Ultimately, businesses need to pivot to maintain their relevancy… At the end of the day we are all in ‘survival mode’ and we will likely be in survival mode for the next 6-18 months whilst we wait for the economy to ‘normalise’.
What we don’t know is what ‘normal’ will look like 18 months from now. All we do know is that businesses and associated strategies will change. But how?
Focus on cash flows and a healthy balance sheet. A significant shift in business reporting and focus is required. Accounting profits do not, necessarily, equate to healthy cash flows, yet cash funds employees and manages the working capital of the firm. Cash is, in every sense, ‘king’.
A downturn in the economy increases the likelihood of bad debts, whilst financing solutions dry up. Ultimately, business risk increases. Cash enables continued operations… maintain cash to maintain survival.
Businesses need to manage their cost profile. Businesses will inevitably take pain and will have to consider unenviable tasks. They will have to ‘cut the fat’ and create lean operating structures. Everyone needs to take a step back; revert from first principles and review and validate their spend profiles. Experience indicates majority of firms have areas of excessive spend. Whether its simple gluttony or inadequate cost revisions there is, generally, spend to be saved. Historically, a 10-15% excessive spend would be absorbed, yet it’s now becoming a determinate of survival.
Manage customers. SME’s will likely be the hardest hit sector coming out of the pandemic. Large portions of SMEs are codependent – we need each other to survive. With increasing pricing pressure, the bargaining power of consumers is shifting. To ensure survival we need to work and adapt customer constraints to seek mutually beneficial terms. In turn, this ‘business development’ relationship will, hopefully, ensure long-lasting, sustainable relationships.
But wait, it’s not all doom and gloom…
Although the pandemic has put forth a sense of doomsday scenarios, by nature we consistently seek a silver lining. That lining is a new way of work.
Reduced competition. One thing is certain, for businesses that weather the storm, the prospects are significantly higher. Inevitably businesses will falter, downsize, or divest in this time. Although this will have further economic ramifications, the initial competitive environment may subside, providing opportunity for businesses to capitalize on, enhancing their clientele.
Lean structures. With the impact of Covid-19 we have, exponentially, improved our digital adoption and associated efficiencies. Digital adoption indicates large volumes of businesses can work remotely. The likely desire for large office space and niceties will decline. Through digital channels, firms can operate globally, limiting time and travel, along with the associated expenditure.
Lean operations are more efficient and easier to manage. Organizational structures can be collapsed making these easier to manage and drive individual accountability. Firms will be driven towards meritocracy where everyone becomes valuable.
Lean operations further ensure improved bottom line results. Improved cost monitoring and detailed spend reviews become focal points, enforcing accountability, healthier balance sheet and ultimately improved sustainable profitability.
Digital adoption. Rapiddigital adoption will breathe new life into many SMEs. It reduces boundaries and enables global trade. Historically SMEs have had limited accessibility to global markets. Yet, through global digital adoption the barrier to entry in these markets are drastically reduced. Not only does digital adoption open borders, it saves considerable time and spend.
Digital adoption further improves the flexibility of employment structures and enables a remote working ability. Historically, firms have required formalized working times. Fast forward to post pandemic and the shift of productive hours can be determined based off output rather than presence. Immediately your firm becomes an attractive option to new employees.
Start-ups. Almost all our everyday ‘essentials’ have stemmed from the 2008 financial crises. In times of uncertainty, opportunities present themselves. In doing so, the opportunities for start-ups and business enhancements become prevalent. Firms can use these times to pivot, access new markets and seek beneficial business partnerships that will set them on a sustainable path in the foreseeable future.
Ultimately, the global economy is constrained and there are vast uncertainties that lie ahead. Businesses need to be proactive and manage their positions. Businesses should start as soon as possible to identify where they can cut-back and how to navigate these times. Many will require guidance and assistance over how to restructure, cut costs and analyze spend requirements. For those who are unsure, we suggest getting in contact with a specialist who has seen, understood, and monitored spend patterns across a multitude of industries. This will enable cost re-basing and structural enhancement to ensure a sustainable business model… something that we can take from ‘survival’ to flourishing as the future becomes clearer.
For any information or further details about business consultations or assistance, reach out to us and how we can assist you in navigating these uncharted waters. Let’s work together to create sustainable business practices.