Surviving during economic downturn
THE last quarter has not been an exciting one of business, particularly small and medium-sized enterprises (SMEs).
The local currency, the cedi, suffered a steep decline in value against the world major currencies in the third quarter of the year.
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It depreciated against the US dollar, the British pound, and the euro by 37.5 per cent, 24.1 per cent, and 27.5 per cent respectively on a year-to-date (YTD) basis as of September.
Headline inflation rate accelerated to 37.2 per cent at the end of September 2022 compared to 29.8 per cent at the end of June 2022.
Bank of Ghana raised the monetary policy rate to 24.50, citing the increase in inflation, heightened demand pressures in the foreign exchange market, uncertainties in the global economy, and rising inflation in many advanced economies as the bases for the tightening of the monetary policy rate.
Interest rates on the 91-, 182- and 364-day Treasury bills began the third quarter of 2022 at 25.88 per cent, 26.57 per cent, and 27.49 per cent respectively but ended the quarter at 30.18 per cent, 31.34 per cent, and 30.47 per cent respectively.
All these developments within the economy has put many SMEs in a difficult state.
It is a fact that, the stronger a business is, the less likely it is to be affected by risks – if they do eventuate – or unforeseen events. Strengthening your business in times like this does not just involve financial management. It also includes strategies to retain and broaden your customer base, market your business affordably, keep morale high among your staff and improve business practices. SME should also look for opportunities to network and form alliances because these will help minimise their exposure to risks.
What to consider
To strengthen one’s business during an economic downturn, SMEs must consider the following strategies.
Prioritise your customers
Many SMEs in the country have extremely terrible customer relations and offer bad customer service. But customer service is about providing customers with what they want, when they want it. If a business provides quality customer service, it is likely to retain the existing customers no matter how often prices change. This also means a business has a greater chance of keeping and increasing its client base. This may mean pivoting the business towards new markets or products and services.
So making customers a priority in an economic downturn may also involve: running loyalty or customer incentive programmes; adapting products and services to be more suited to your customer's current needs; diversifying business to minimise potential damage from the loss of a significant customer.
In such tough times, it is particularly important to find ways to retain existing customers by providing good after-sales service so they feel some empathy.
Marketing strategies
In such times, it is also important to review marketing strategies. That can help a business come up with new ideas to increase sales and find better ways of using their marketing budget. One should focus on communicating a competitive advantage.
The business’ unique selling proposition should also help it to stand out from the crowd. Alongside this, it's important to develop strategies to measure the effectiveness of the marketing strategy.
Marketing a business can be an expensive exercise, and during an economic downturn it's especially important to explore free marketing tools available, including social media and word-of-mouth advertising. Note that, a trusted newspaper is also key in these times.
Staff management
Ensure there is an up-to-date human resources (HR) plan. Use that plan to detail staffing costs, which in turn will allow one to accurately cost products or services offered by the business.
Build morale and motivation by clearly communicating with the staff what is happening within the business. Try to involve them in decision-making and finding solutions.
During an economic downturn, it may be required for a business owner to change the staffing arrangements. If hours need to be reduced, try finding flexible solutions (e.g. you could ask some of your full-time staff to work a 4-day week, or use job-sharing arrangements). If you do need to let some staff go to save money, make sure you understand your obligations for ending employment. Do not just act because retrenchment can have dire consequences on finances.
You may also consider training your employees to undertake more duties. One can conduct a staff skills assessment to identify the training the staff may need.
Conclusion
This is not the first time the economy is facing such challenges and it will not be the last. What such tough times teaches business is that, there is the need to adjust to stay afloat and that calls for a 360 view and implementing innovative ideas.
It is important to note that surviving in such times does not require doing big things only, small things can also do the magic.