The economy, like many others in the world, is facing one of its worst recessions occasioned by high debts, rising inflation and a volatile exchange rate for the local currency which until last month, was described as the worst performing currency in the world.
On the brink of last year, Parliament passed the Value Added Tax (Amendment) (No.2) Act, 2022 (Act 1087) and Electronic Transfer Levy (Amendment) Act, 2022 (Act 1089) to bring into effect proposed changes in the VAT and Electronic Transfer Levy (E-Levy) regimes.
Again, Act 1087 has revised the standard VAT rate from 12.5 per cent to 15 per cent. Thus, taxable suppliers registered under the standard VAT rate regime will be required to charge VAT at a rate of 15 per cent on the value of supplies.
It must be noted that, unlike many other jurisdictions, VAT in the country is charged together with National Health Insurance Levy (2.5%), Ghana Education Trust Fund Levy (2.5%), and COVID-19 Health Recovery Levy (1%).
In reality, it means that the effective VAT (and related levies) rate will, therefore, increase from 19.25 per cent to 21.9%.
However, persons who qualify and are registered under the VAT flat rate scheme will continue to charge VAT at a flat rate of three per cent plus one per cent COVID-19 Health Recovery Levy.
Indeed, these developments, among many other things including the dreaded debt exchange programme, signal tough times for businesses, particularly small and medium-sized enterprises.
The phenomenon points to the need for SMEs to adopt the right strategies to keep them afloat through the difficult times and beyond.
1. Make cash reserves centre of interest
According to the experts, if you don't have a large amount of cash on hand in your business, it would be smart to figure out where you could find it. Cash reserves are something that is generally built with foresight and planning for the future, but that doesn't mean that you can't build them up if you are feeling weak in your cash reserves.
Look at your current invoicing and try to find any outstanding invoices that clients might be late with. Follow up with any clients that might be struggling to pay their invoices and try to work out payment plans with them. Do whatever you can to ensure any money that you are owed will make it into your accounts as soon as possible and do everything you can to hold onto it.
Another place to look is treasury assets. Most small businesses do not hold treasury assets like larger corporations, but if you are large enough to have a Chief Finance Officer (CFO) and treasury assets, see how readily available those assets can be liquidated. If needed, liquidate a portion of them to allow a larger runway if sales drastically decrease.
The focus here is to increase your runway and plan for the worst. Of course, this depends on how fundamental your goods and services are for your clients. No matter how necessary you are for your clients, expecting and planning for the worst will be in your best interest.
2. Leverage profitable activities
As a small business, you need to find your most profitable activities and buckle down on them.
Often times in a thriving market, we can become complacent. Sometimes we allow our employees to pursue different types of activities — some profitable, some not. Going into a recession is a great time to do an audit of our employees' activities and get a very clear understanding of what's most profitable.
Its critical to conduct an audit of all marketing techniques and buckle down on the most profitable because that is one of the best ways to streamline your business. An example would be if you have an events management unit which returns zero in spite of the heavy income from headline sponsors, it means the labour of that unit is not being productive. The focus should rather be on those in the marketing department whose actions bring tangible value. Shift your efforts over completely to what drives revenue.
Focus on the most profitable parts of your business during a recession and when the economy turns again, you'll be even better set up for success.
3. Client retention, referrals key
Happy customers create more business. Repeat and referral business is extremely important in a recession. Ensuring that your clients are happy is vital in any economy but, especially in a recession. When money gets tight, everyone looks for ways to cut expenses. In the newspaper industry, for instance, adverts support the business. When companies cut their marketing budgets, the industry players suffer.
But this is where the newspaper must be relevant and do what touches the companies from the base, such as publishing their releases, giving them discounts in the lean season to keep them coming and always planning new initiatives with them involved.
A recession is a great time to increase touch points with your clients in order to ensure client satisfaction. So, for instance, the advertising agencies must be constantly engaged broadly and constantly.
Sometimes when the economy changes, so do your client's needs. Utilising this opportunity to discover any additional or change in the pain points of your customer can lead to more profit, satisfaction and referrals.
Often times, people are on the defensive instead of the offensive in their business during a recession. If you serve business to business (B2B), look at ways you can help them defend their business while adding to your own. If you are in a B2C business, look for ways to help your customers spend slightly more now to save later. Play to the psychological state of your clients and customers in order to help them feel heard and solve their problems.
What the economy is experiencing requires right thinking strategies, albeit, not new. Recessions can be scary as a small business owner but often times, they can help you find places to optimise your business and when you come through a tough economy, you're able to build confidence in your ability to run your business, as well as increase profit.
Buckle down and focus on what you can control, the right moves now will set you up for success in your business now and in the coming years. All is not lost.