While survival is the immediate short term strategy, revival is medium to long term strategies. In my earlier columns, the four ‘C’ to survive these challenging times were discussed. This four ‘Cs’ is derived from the survival model — 7 ‘C’ model — that many of my mentees have successfully applied.
The four ‘C’ mentioned in my previous articles were cash, costs, communication and focus on customers. It is all about conserving cash, looking at eliminating and reducing costs and communication to all stakeholders.
To be specific, we also mentioned about interest as an important cost which can make a firm go bankrupt. Our analysis explicitly reveals that a business person should not expect any further reduction in interest costs at least in the near future. Our previous article outlines the reasons why we feel that interest rates will not decrease further.
This week let us focus on the fifth ‘C’ which is capital expenditures. This essentially takes up implementing future growth plans. The two growth strategies that are available for businesses are organic and inorganic growth. Organic growth strategies involve setting up new projects starting from scratch. It involves beginning from ground zero and involves a lot of time.
For example, if you wish to get into a hotel business then it will involve selection of land, getting requisite permissions and then constructing it as per one’s specifications. Here the bottleneck let me warn all of you is getting permissions. Many statutory authorities now claim that taking permission is a single-window clearance. In short, a business person need not approach multiple authorities for projects. Unfortunately in many cases, this is not true. So, before taking up such capital-intensive projects one should do sensitivity analysis.
Feasibility or viability
Sensitivity analysis is checking the viability of the project even in the worst-case scenarios. One more key management input should be shared here. Many entrepreneurs and business persons get so personally and emotionally attached to the new projects that they only look at the feasibility of projects. Unfortunately, even in many educational institutes, the emphasis is on feasibility. I strongly suggest that apart from feasibility a business person should pay equal or more attention to the viability of the project.
The difference between feasibility and viability is that the former focus on whether a project can be done, whereas the latter evaluates if the project can be profitable. Here the keyword is profits.
Before going for any new capital expenditure, a business person should analyse the new project to ensure that it is viable. This analyses should account for the worst-case scenarios as well (this is also called stress testing of projects). When a project passes such stress tests then one may think of proceeding else it is better to defer capital expenditure in these challenging times like COVID-19.
Next week, we shall discuss the remaining ‘C’.
Dr Menon is a business coach and has a youtube channel menonmantras where many videos are uploaded for benefit of the business community and employees.