Since the initial impact of the COVID-19 crisis, the economy has mostly rebounded steadily, until now. The winds have changed, and the rate hike announcement on 2 August from the Reserve Bank of Australia also came with a dire intimation to expect more as boom turns to bust.
Experts, including the RBA, cite difficult to predict global factors as playing a role in the economic downturn and inflation – China lockdowns, the war in Ukraine and surging oil and gas prices – but domestic factors are also contributing. The floods this year and a tight labour market are some of the more obvious ones.
How to prepare your SME for tough times
If your SME has survived the pandemic, it’s likely the bones of your strategy are already in place but you should revisit and adjust to this new reality.
Much like the strategy for large enterprises in many ways, small businesses having a clear handle on their numbers is the best starting point. First, you need to deeply understand your revenue and cost, then model out different scenarios such as ‘no change’, ‘moderate reduction in business’ and ‘total catastrophe’. That way, you’ll build out or rework your business plan around the ‘moderate reduction in business’ scenario without skipping the other two possibilities. These activities will give you a good idea of your risks, possible opportunities, and sensitivities.
Expenditure and outgoings are a common reactionary go-to in hard times and, while you should examine these, you should also cut costs warily. One of the first places to consider is hiring. Can you do more with the same or even less resources? Additionally, look at your business activities. Do you have ‘experiments’ happening in the business? Maybe a marketing campaign you aren’t sure will work? Cut things that aren’t ‘proven’ from your budget, and leave things that you already know work.
Unfortunately, the harsh reality is that some businesses will do better than others through this recession, and in some cases the logic isn’t always obvious. It could come down to whether or not your product or service is ‘nice to have’ or ‘critical’. It may vary by industry, but you have to be real with yourself about how disposable your product or service is.
‘Nice to have’ isn’t always bad, it’s really about how you position it. Lipstick sales historically go through the roof during a recession, as it’s considered a small but affordable luxury or ‘treat’ that people think is reasonable. It has the psychological benefit of making the buyer feel better during tough times. So, even though you may have a product or service that is ‘nice to have’, you can actually position yourself to be attractive during a recession with the right message or marketing.
Come to grips with reality
We know that recessions are cyclical, so don’t bury your head in the sand. Try to embrace reality rather than worry about possible downturns. Get a deep handle on your numbers and expenses and make the necessary adjustments; waiting too long will make it harder.
The best advice I have been given and would pass on is to drop everything and get on top of your costs to understand, challenge and hammer them until you feel like you’re playing at the margin.
But above all, think about how you will position your business in both good times and bad. Always be bold about what you provide to the world and its value, independent of the context.
