Effect of recession on small businesses

By Hemal Dias Consultant Marketing

In Sri Lanka, 30 percent of small and medium scaled businesses are engaged in exports. By now all our exporters must have realised that the current recession may prove more damaging to export-oriented businesses than those of past years.

The current recession can mean a lot of changes for small businesses such as decrease in revenue, tighter lending conditions and increased operational costs are some of the effects we are experiencing as small businesses faced during a recession. We have been witnessing that some small businesses will fail during difficult economic times, and others will take advantage of new opportunities, go with the market flow and flourish.

Since our independence, we have not given much of a prominence to our local industries and of course our entrepreneurial efforts. Large number of industries and small businesses are still not directed properly, depending too much on grants and subsidies from the government whilst few are continuing with their businesses irrespective of neither professionalism nor much of entrepreneurial efforts.

With the introduction of the free market economy, our agriculture sector was completely neglected, our irrigation systems, perennial crops, dairy industry and history were all sidelined. The national policy based on Mahinda Chinthanaya, emphasizes the importance of the role played by the manufacturing community to help build the national economy and also provide various assistance to maintain their success.

As an immediate change to the existing supportive incentives to small and medium scaled manufacturing and marketing establishments, government. has identified and supported well over 3,000 SMEs so far. In most of the countries, small businesses fuel economic growth, so the effects of any economic turmoil on small business can further diminish the nation’s economic stability.

The question we should ask from ourselves that what have we achieved with the IMF and World Bank reforms such as selling of highly profitable public owned businesses under the free market policies.

Before the recession hit the global economies, we all knew that China and India were very cautious with IMF and World Bank recommendations and couldn’t implement much of the economic reforms. Today these two economies are bouncing back from the current recession than developed economies, leaving behind many lessons for reformers.

In Sri Lanka small businesses contribution to GDP is estimated at 14% and it will be the backbone of any economy, in countries like Australia it will be as high as 35% contribution to GDP. Small businesses have been credited for significant percentages of job growth, and effects on the economy that impact small business can have drastic effects on the unemployment rates. When small-business profits suffer, those companies are forced to lay off employees, and without new job growth, the unemployment rates rise.

Many small businesses fail during economic recessions. However, others manage to prosper. Small businesses that are able to adapt to changing conditions in the economy are able to manage with their best. For example, a business may change its product line, packing and merchandising to appeal to new segments or service the existing customers during the hard times.

Today on our electronic media it’s quite visible that there aren’t very many companies advertise and maybe owners cut back on their marketing budgets when anticipated target have not met and warnings of a recession appear in the news everyday.

There is a common saying these days that “Businesses that think strategically realize that most other business owners will be cutting back on their sales and marketing budgets at the same time, so maintaining the current marketing plan makes sense.”

When everyone else cuts back, the few businesses who continue marketing efforts may be the only businesses in the industry on air, in the newspaper or making an appearance in any marketing medium, so they are more likely to be top-of-mind to potential customers. But the question that asked by every business is “what cost?” the media houses must be offering an attractive advertising packages vice versa the good advertising companies must be in a position to bargain for better media deals for their clients.

The following points are a few things that you can do to stay focused and maintain the success of your small business during the recession:

Improve customer service:

Your employees should be trained and understand that tough times require a gentler touch and your customers need to be treated as VIPs now more than ever.

We all know that how difficult is to get a customer to your store or convince for your products. Recently I have visited a leading clothing store in Colombo and I was absolutely shocked to see the customer service of some of the sales boys. This is definitely not going to help them in the current situation and make sure that each and every customer gets special treatment and leaves your store or office satisfied that you have delivered much more than what was expected.

Today we cannot hardly find a loyal customers as all your competitors may be selling the same products that you are, it will be your satisfied customers who will not only bring in repeat business, but also new customers.

Improve your knowledge and skills:

This situation has helped many individuals to build on the knowledge and learn new skills regarding the technical and financial aspects of the business.

Be a good advisor to your customers, in the end your customers should be impressed with your product knowledge and solutions.

Interact with the other departments, colleagues as this not only will enhance your reputation as an expert, but will also ensure that they come to you if they run into difficulties.

Control your expenses:

Perhaps this will be better side of the current recession as many individuals have now realized the unnecessary expenses within and outside the organisation. Now is the time for you to tighten up the controls on all your expenses, especially those that are not crucial to keeping your business going. You can split large expenses into smaller ones so that will not affect the cash flow situation and more manageable. Always compare prices offered by different suppliers when purchasing inventory.

Lower your profit margins:

No businessesman is willing to cut down profit margins but this will only be temporary, this is a good time to lower your profit margins and secure your markets and customers. Communicate with your existing and potential customers and inform them that you are making this move to help them in this difficult times. We all know that before the recession you may have contacted the customers once or twice to get a sale, but today it can be 10s or 100s times as everyone is having their own difficulties in buying.

We need more sales to make up the difference, and their goodwill is more important than ever. You can always go back to your earlier pricing strategy once the recession eased off and may be this can be a good learning for you to understand the pricing strategies etc.

Internet will be an effective marketing tool for you:

Design an attractive website and Sri Lanka has talented individuals who have mastered the designing of websites. Hire an expert who can ensure that your firm is always on top in product searches, and make your website attractive and interactive. This will be much cheaper in comparison to other available avenues and the cost is very reasonable and affordable at this difficult situation.

If your staff is motivated, survival will be easier:

We really do not know how many companies are having a closer dialogue with their employees and keeping the staff well aware of the business situation in the current recessionary market. They will be motivated to work extra hard to achieve the desired results, if they are convinced that their participation can save the business and their jobs.

Only businesses with a solid foundation and foresight survive the inevitable bad times that go along with managing a business. If not everyone will be under tremendous pressure on their own survival and uncertainty will never help to maintain the better working relationship between stakeholders and the employees.

Good leadership qualities of CEOs and Managers with an extra effort and hours of working, so the staff will know that all are going the extra mile.

Use these ideas and seek others on your own so your small business will survive any recession.