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August 18, 2019

Prudent practices help businesses thrive during recession

Business

August 18, 2019

LAHORE: Recession is also an opportunity if prudent measures are instituted to benefit from the demands created by it. Nations and companies with prudent policies have gained more strength during such times than during normal growth times.

Recession is in fact a real test of leadership, both political and business. There are many sectors of the economy that do not slow down.

The healthcare sector for instance is one that thrives even in recession. Illness, disease and death rates remain the same or slightly increase during such times.

Pharmacies and clinics do business as usual during periods of economic stress. In bad times, the bad do well. The grave diggers remain as busy as ever.

There are no job cuts in the waste management companies because the amount of waste created daily does not change. In good times, people might buy new shoes, a new stereo or other, bigger-ticket items.

In bad times, the desire for comforts doesn't leave, it simply scales down. People will pass on the stereo, but a pack of cigarettes or a chocolate bar is small expenditure that helps hold back the general malaise that comes with being tight on cash.

Everyone from an individual to a company looks for ways to reduce spending. For businesses the biggest benefit in an economic downturn is that they try to remove inefficiencies from the system that they did not care about in good times. By trimming the unnecessary fat they emerge stronger and well prepared to accelerate growth in good times.

In recession all the competitors are in the same boat as you. The one that is able to swing it through prudent leadership is destined to be the market leader for a long time.

This is a perfect time to launch new initiatives, take market share from rivals, and put the company in a position to accelerate through the recovery. These companies do cut cost but in a prudent way.

Enterprises need their employees to rally around the company’s survival. This is the reason that prudent leaders avoid taking such cost cutting measures that would do more harm than good to the enterprise.

If the company culture is to ask the employ of the month to cut a cake a month they let it continue to keep morale up and the minor cost is well worth it. Similarly productivity boosting expenses like the coffee machine or a well-stocked soda fridge are relatively small expenses where the benefits in employee productivity far outweigh the costs.

The most difficult part however is the exercise of layoff. It is a necessary cost cutting measure to ensure the survival of the enterprise.

The best way is to study the situation deeply and also evaluate how long it would persist. After careful analysis the prudent leaders go for a deeper cut than required at that particular moment.

This ensures that they would not have to go for another job cut after six months.

If the layoff is shallow, the employees would live on edge always fearing that the next turn would be theirs. In that case everyone will be scared for their job. A jittery production or marketing team is not an effective team.

The companies that flourish are the ones that change their business plan and concentrate on fast moving products while discontinuing the slow moving items. This stands true for retailers as well as manufacturers.

The first cut that the people make during lean economic period is that on clothing. The brands come under pressure but the non-branded replicas still manage to increase sales.

Most small businesses under current testing times are seeing new business dry up. This slowdown in new business alone is bad enough for any small business owner, but the loss of your best customers will be nothing short of catastrophic.

This is the time when leadership qualities are tested. Small companies deepen their contacts with most valued customers through calls, email, or a card telling them that the company appreciates their loyalty and continued patronage.

In a slow down, cash is a scarce commodity. More cash could be saved or generated by reducing inventory both of inputs as well as finished products.

Moreover, the sales team is motivated to increase sales by giving cash incentives of 1-2 percent instead of providing goods on 10-30 days delayed payments.

While the sales of new products slow down, the companies that specialise in repairing, upgrading and maintaining existing equipment and products thrive.

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