Let us start on a good note in these challenging times. It is certain that the human race has been gifted by the Almighty to face and overcome all challenges. As we all are well aware, the global economy is passing through a very turbulent time due to this pandemic. Various economies have slipped or are expected to slip into recession. Unfortunately, it is a systemic crisis as all sectors have been badly hit. Numerous companies have already announced bankruptcy. Many experts believe that there could be more bad news and it is the Micro, Small & Medium Enterprises which will be the worst affected. This article focusses on what firms can do to survive this tough times. It is what I would like to call the seven ‘Cs’ which many of my mentees have successfully applied with good results.
The first ‘C’ is of course Cash. In these challenging times, conserve cash and try to keep a buffer cash balance of at least three months. This can be achieved by following some steps. This is where the second ‘C’ that is ‘Cost’ comes in. Follow intense cost-cutting measures. Adopt zero-based budgeting techniques and revisit all your assumptions regarding costs. Eliminate fixed costs as much as possible. For example – let us consider one such cost i.e. rent expenses. Let us say you have rented a shop for a fixed cost of 1 lakh per month, assuming you will generate some monthly sales. However, it is clear now that the expected monthly sales will not be generated. So there 3 alternatives.
Alternative 1: In case one believes that this particular shop is not expected to generate good revenue in the near future. Then one could consider surrendering unwanted premises and eliminate these unnecessary expenses.
Alternative 2: In case of elimination is not possible one may try to negotiate and reduce it as much as possible. If both reduction and elimination are not possible, then its best to opt for conversion.
Alternative 3: This essentially means the conversion of fixed costs into variable costs. For example, rent has been traditionally considered as a fixed expense. However one can convert it into semi-variable expenses. One can renegotiate and request that the fixed rent be reduced to Rs 50,000 per month and there could be a variable component of (say 0.10 per cent) of sales generated from that premises. In this way, one can reduce their fixed expenses and of course when good sales are generated it will be a win-win for all stakeholders. A dear mentee, Joseph Paul has adopted the above steps with good results. Suggest all business to try this Eliminate, Reduce, Convert (ERC) approach for not only rent but all possible costs and expenses.
The third ‘C’ is Communication to all stakeholders. Each and every person knows that business is passing through challenging times and are thus open to negotiations. Of course, a good negotiation should be done based on the basis of empathy and should be a win-win for all stakeholders.
Cash, cost and communication were three ‘Cs’ that was discussed today. Next week we shall discuss the remaining ‘Cs’. Till then please apply these three and let me know your feedback at email@example.com
Menon is a business coach and has a youtube channel menonmantras where many videos are uploaded for benefit of the business community and employees