Giving the current state of Nigeria’s economy, is your business recession proofed?
Going by the 2016 1st Quarter Reports by the National Bureau of Statistics (NBS) analyst believe the Nigerian Economy is heading for a recession! In fact, some believe that Africa’s largest economy is already in a recession!
What is Recession
What is Recession and what does it mean to an average small/growing business owner? A Recession is a period of heightened decline in economic growth characterised by massive Gross Domestic Product (GDP) retraction, high inflation and unemployment rates leading to loss of disposable income for the larger populace in an economy. There’s a more technical definition here.
Why Should Small/Growing Business Owners Care?
Some of the real effects of a recession include liquidity squeeze (occasioned by general apathy to spending) and general loss of value for both hard and soft assets. According to this report (PDF), the 2007-2009 US recession had more impact on Small/Growing Businesses more and the UK Telegraph believes larger corporations are better positioned to handle the effects of inflation.
Larger corporations are generally better positioned to bear the brunt of inflation, as it can be offset by savings generated by economies of scale. Small firms, however, often take a direct hit on margin.
How Can Small/Growing Businesses Survive Recession?
Some Sectors Saw Growth While Others Declines. Source: NBS
To survive a recession, there a few steps a Small/Growing Business Owner take especially in a country like Nigeria. However, what you do would depend on your industry. For instance, from the NBS report, while Agriculture, Education, infotech, Arts & Entertainment and Health sectors saw growths, Professional & Scientific, Real Estate & Construction, Oil & Gas to mention a few saw decline.
Re-Evaluate Your Business & Risks
The first step is to rethink your business including a thorough introspection. Possibly, make a list of the parts of the business that you consider most vulnerable and research your options. Evaluating your risks would help you identify areas of the business that might drag you further down and implement whatever appropriate strategy that’s necessary to save it. If you do this correctly, you might just find out some shocking results which might include the following:
- Pivot is required
- Staff Right Sizing is Required:
- Stock Offloading is Required:
- Reduce or Stop Outright Credit Sales:
- Stronger Inventory Control:
To Pivot is to change your business directions and objectives in the face of compelling evidence that renders the former plan untenable. You can
From a Small/Growing Business owner perspective, a recession is not a time to hire – although, there will always be exceptions. It’s a time to optimise
Depending on the nature of your business, offloading stock quickly would prevent capital lockdown, outright loss and improve short (or even long) term cash flow. A sure fire way of doing this is through sales promos.
Tighten up on credit allowances. Remember that in a recession businesses fold. It is advisable to avoid giving credit as this might lead to debt write-offs and loss when clients are unable to pay.
Tighten up on your stocks and inventory. Be sure of who you are supplying to, which proxy supplies on your behalf as this can lead to loss of goods and revenue. The general idea is, this not when to lose anything – everything counts.
We are in the digital age and technology is continuing to help push the boundaries of what’s possible. Embracing technology will ensure you are on the cutting edge and would know the dynamics of the economy faster than your competition. There are a lot of tools a Small/Growing Business Owner can deploy – from Human Resources, ERP to even Standalone Financial tools.
Work With Data
One good thing about technology is the ease with which Data can be mined, analysed and result put to use. Make use of Data both from your business and make a point to compare with peers. It will help you make decisions faster and reduce your risks significantly while improving your chances of survival.
Whatever You Do, Cut Cost
Well, it’s a recession because there’s a serious liquidity problem. It means no matter your sales projections, you may never meet them talk less of your profit projections. What to do? Cut cost! By all means save cost – if you won’t be making more, why spend more? It’s only common sense.
Diversify Your Revenue Base
A recession can also be a good time to start a new business or start additional lines. Owing to the liquidity problems, a number of assets can be surprisingly cheap to acquire especially in the housing sector. You can also take advantage of the Labour glut to hire quality staff who were probably surplus to requirement and laid off by their previous employer. The fact it’s a recession doesn’t mean everyone is suffering a liquidity problem – so if you don’t belong to the category of those suffering, it might be an opportunity for you to start some great projects on a budget.
You can add your thoughts in the comments, let’s hear you.
Editor’s Note: Uche Aniche contributed to this article.