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Ten ways for SMEs to deal with a downturn

Recession

Booms and busts are a natural cycle in capitalist economies. Let the good times roll but they will inevitably be interspersed with short or medium-term downturns and also flash crises. How should an SME owner effectively deal with downturns? There are a number of strategies that are useful to consider and adapt and, if you are well prepared for an inevitable downturn, implementing one or more of these strategies can save your SME time and money.

  1. Minimise operations

    If your SME has low fixed costs, which it should do, then a downturn may be the perfect opportunity to simply close shop and go on holiday or do some of the things that you had always wanted to do but had no time for. You can keep operations going as normal during a downturn and spend months or even years working for no profit, but what is the point of that? Keep the image of your operations as being open and keep communications going but all but closing shop may be the best option in a downturn. If your operations are still in tact then restarting as the downturn ends means that you can pick up where you started without much effort.

  2. Maximise your market

    Every cloud has a silver lining and if you are lucky to be positioned in a market that benefits from a downturn then this may prove an even bigger boost for your SME business. Take for a example chicken producers during the BSE beef scare in the UK or home delivery services during SARS in China. Both industries experienced an enormous surge in demand due to a downturn that affected other industries. If your SME is lucky enough to be in such a position make the most of it while it lasts.

  3. Tell your customers you love them, again

    Loyal customers are your bread and butter as an SME. Showing your customers that you love them involves signaling and communication. The emotional link between an SME and its customers is vital during downturns. Rallying your customers around you during hard times may involve simply asking them for their support. The goodwill that you have built over previous years may be returned many times over.

  4. Create silos

    Making your SME bullet proof to any uncontrollable occurrence outside involves creating a structure that has safety nets. Creating silos mean that one part of your SME business will not be affected by a downturn in other parts of your business. Keep different aspects of your business separate and insulated and protect yourself from a domino effect that could crash your SME.

  5. Reassess your business model

    Take the opportunity to reassess your business and streamline it, cut out the unnecessary costs. Examine improving your business model and ask yourself ‘why is this now not working?’ Is a downturn in the market really the cause of my lower profits or is it my SME structure or strategy, or something else? Asking these fundamental questions and then conducting an analysis may give you answers to questions that you should have asked before but didn’t until you were faced with a difficult situation.

  6. Downsize

    Get rid of unwanted or unnecessary staff to reduce costs. Non-performers, non-contributors, trouble-makers or just people you don’t like can be let go of during a downturn with the convenient excuse, ‘Sorry we just don’t have enough business to keep you on at the moment.’ Do it nicely and gently and keep in touch with these people as they are ambassadors for your brand.

  7. Go digital

    If you haven’t already done it, get online. The world is going digital and in a downturn digital sales will add an extra dimension to your business that may just keep your head above water.

  8. New marketing

    Move in to different markets either domestically or internationally. Brexit has caused some SMEs to experience dramatic downturns in the UK. This process has only just begun to see the effects. One strategy for a downturn that is likely to last a long time is to simply expand in to other markets overseas that are growing or where there are needs to be met by your existing products and services.

  9. Followership

    Follow your customer. In the case of some Chinese companies they are following the trend of Chinese consumers travelling overseas to track and harness their spending power whilst they are mobile. Find out if your customers are mobile overseas and strategise who your targets are and where they are going and figure out strategies to follow them.

  10. Acquisitions

    Buy up your competition or distressed companies that are going cheap or in dire need during a downturn. An economic downturn may cause SMEs to cut their prices or to see the value of their business reduced temporarily. If you are cash rich and aggressive during a downturn you may be able to beat your competitors or even buy them out at a significant discount to the prevailing market price.

There are a variety of strategies for SMEs to survive or even thrive during economic downturns. Being creative is key for an SME owner and with every downturn there comes one or more opportunity, if you are prepared, vigilant and willing to take the risk.

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Paul Conway
Paul Conway
My role as CEO is to take the business to the next stage of growth. I already have a fantastic and growing team. There are opportunities with payments, banking channels, additional software, cloud deployment and with over 300,000 customers in South East Asia and a publicly listed majority shareholder in Censof holdings, the opportunity and tools for growth are very real.

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