12 April 2023
SMEs can continue to survive and thrive during a recession by taking a proactive approach to managing their finances.
Small and medium-sized enterprises (SMEs) are often the backbone of economies, providing jobs, goods, and services to communities. However, during a recession, these businesses may face significant challenges that can threaten their survival. Fortunately, there are steps that SMEs can take to not only survive but also thrive during an economic downturn.
Cut Costs & Focus On Cash Flow
The first step that SMEs can take is to cut costs wherever possible. This may mean reducing staff, renegotiating contracts with suppliers, or finding ways to streamline operations. Every dollar that can be saved will help the business weather the storm and remain financially stable. During a recession, cash flow is king. SMEs should focus on ensuring that they have enough cash coming in to cover their expenses. This may mean invoicing more frequently, offering discounts for early payments, or extending payment terms for customers who are struggling.
Diversify Revenue Streams
SMEs should not rely solely on one product or service for their revenue. By diversifying their offerings, they can spread the risk and ensure that they have multiple sources of income. This may mean expanding into new markets, developing new products, or offering new services. SMEs can expand their revenue streams by developing new products or services that complement their existing offerings. For example, a restaurant might add a catering service or a clothing retailer might start selling accessories.
Businesses might also want to consider forming partnerships with other businesses to cross-promote their products or services. For example, a hotel might partner with a local tour operator to offer packages that include both accommodations and tours. Additionally, they can generate revenue by licensing their products or services to other businesses or individuals. For example, a software developer might license their software to other companies or individuals.
Build Strong Customer Relationships
In tough economic times, customers are more likely to stick with businesses that they trust and have a strong relationship with. SMEs should focus on building and maintaining strong customer relationships by offering exceptional service, communicating regularly, and being responsive to their needs.
One way to enhance services is to actively seek out customer feedback and use it to improve products and services. This can include conducting customer surveys, monitoring social media for feedback, and responding to customer reviews. SMEs should strive to personalize their communication with customers. This can include addressing customers by name, sending personalized emails, and tailoring marketing messages to individual customers based on their interests and preferences.
Embrace Digital Technologies & Seek Government Assistance
Digital technologies can help SMEs operate more efficiently, reach new customers, and stay competitive. By embracing tools like social media, e-commerce platforms, and cloud computing, SMEs can stay connected to their customers and remain agile in the face of economic uncertainty. One such tool that SMEs can consider are Business Intelligence (BI) tools that will enable SMEs to analyze and visualize their data to gain insights into their business operations, track key performance indicators (KPIs), and make data-driven decisions.
During a recession, governments often offer assistance programs to help small businesses stay afloat. SMEs should take advantage of these programs by applying for grants, loans, or other forms of support. This can help them bridge the gap until the economy recovers. In Singapore, the government provides various financial assistance schemes to help SMEs with their cash flow, access to credit, and other financial needs. These schemes include grants, loans, and tax incentives.
The government further supports SMEs to upgrade the skills of their workforce through training and development programs. This includes the SkillsFuture initiative, which provides funding for training courses and subsidies for the cost of training. The Singapore government’s support for SMEs is comprehensive and multifaceted, covering a range of areas including finance, technology, skills upgrading, internationalization, and regulatory support. This support allows local SMEs to survive and thrive in today’s challenging business environment.
Focus On Marketing
During a recession, many businesses cut back on marketing spending. However, SMEs should continue to invest in marketing in order to stay top of mind with customers and attract new business. This may mean shifting to lower-cost digital marketing channels, like social media or email marketing, or focusing on word-of-mouth referrals.
Building a strong brand can help SMEs to differentiate themselves from competitors and establish a loyal customer base. By investing in branding and brand messaging, SMEs can create a connection with customers that transcends price and other factors that are heavily affected during a recession.
With the current inflation, customers are more price-sensitive and are looking for value. SMEs can leverage marketing to communicate the value of their products or services to customers, emphasizing quality, reliability, and affordability. By understanding the needs and pain points of their customers, SMEs can tailor their messaging to resonate with their target audience.
Build A Strong Team & Plan For The Future
A recession can be a stressful time for employees, so SMEs should focus on building a strong team that is committed to the success of the business. This may mean investing in training and development, offering incentives for performance, or creating a positive and supportive work environment. SMEs can foster a more positive work environment that supports collaboration, innovation, and creativity by providing a comfortable and functional workspace, offering perks such as flexible work arrangements and team building activities, and recognizing and rewarding team members for their contributions.
Having a diverse team can also bring different perspectives and experiences to the table, which can lead to better decision-making and problem-solving. SMEs should actively seek out and hire team members from diverse backgrounds and with different skill sets.
While it can be difficult to think about the future during a recession, SMEs should still have a long-term plan in place. This may mean setting goals for growth, developing a strategic plan, or investing in new opportunities. By thinking ahead, SMEs can position themselves for success once the economy recovers.
In conclusion, SMEs can continue to survive and thrive during a recession by taking a proactive approach to managing their finances, building strong customer relationships, embracing digital technologies, and focusing on innovation. By staying flexible and adaptable, SMEs can weather the storm and emerge stronger on the other side.