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What To Do In An Economic Crisis?

Assess the strengths and weaknesses of the company

For an SME, to what extent should we be concerned and what are the clues that can detect that the situation is serious are they?

You have to worry if increases in annual sales are between 2 and 3% or decrease. Why? Because this rate is the rate of inflation. If sales have increased by the same percentage, it is shown that the SME stagnates or decreases. Anyway, both situations require immediate action.

What-To-Do-In-An-Economic-Crisis image

You should also worry if featured products are losing ground. This allows an SME to stand out from the competition, is the presence of typical products that attract a certain amount of customers, 20% of the products generated 80% of sales. However, if the ratio of operating a star product decreases relative to total sales, this means that the product is running out of steam. In this case, immediate action by the Director General of SMEs to stimulate product is needed.

You have to worry if the “tops” are more specialized and deeper “valleys”. sales figures are drawn watches on a chart that gives a totally different perspective to the manager. In at least three years you will be able to see how the situation developed. Usually, it is the extreme naval that the situation will deteriorate. Observe high shorter season, therefore, sharper peaks. We also note more rounded and elongated during periods of low traffic valleys. Obviously, this requires large corrections.

You should also worry if decreases employee motivation and the rate of increase in turnover. If you start to demotivate staff and turnover increases significantly, it is probably a sign of any trouble. If there are no problems related to the union and the collective agreement, staff may no longer believe in the formula. And if the staff does not believe, how can you believe that the customer?

Finally, you should be concerned if the financial ratios are negative. If, by comparing financial ratios with those of prior periods and with the industry and that there is a deterioration, it must respond to correct the situation. Among important to monitor financial reasons, we find the ratio of working capital, the liquidity ratio and debt ratio.

To assess whether your company is able to cope with the recession, identify the strengths and weaknesses of your business in the following areas:

  • Products and services
  • The organizational structure
  • Marketing
  • The production
  • Human resources, information, material and financial.

What are the strengths and weaknesses, and why? What are the areas for improvement?

Prepare an action plan soon

What-To-Do-In-a-Financial-Crisis imageWhat do we do? How do you approach your business is the recession? Do you keep the same mission? the same goals? Or revise, modify them to better adapt to the new conditions?

Therefore, you should prepare an action plan based on the diagnosis that was made.

In an SME, when sales decrease, so do not get everyone. For the entrepreneur, which is a bit more complex. Here are some tips.

Ensure sufficient liquidity

What is the minimum working capital to ensure the survival of the company? How long?

The employer must ensure that they have the financial resources to get through a slowdown, economic crisis.

The means to take are: to collect receivables faster, reduce inventory, cut spending, downsize, delay investment, reduce debt, dispose of some non-performing assets, operate on a policy of austerity.

In times of crisis, sales, market share, innovation, benefits must be balanced with the financial strength, solvency, and liquidity. A company can survive long periods of low earnings if you have enough liquidity.

Focus on efficiency in operations

Efficiency is not necessarily or only lower costs but increased productivity in financial control, personnel management, and inventory management.

Improve management tools. Especially for information management purposes. Ideally, an SME should be able to analyze the results of certain activities in the daily or weekly.

Focus your efforts

The decline in profits can come from a lack of attention, products, and resources.

What is it 20% of the products generated 80% of sales? Eliminate unprofitable products, problematic products. Focus its resources on the most profitable products.

what-to-do-in-times-of-economic-crisis imageTo make better use of its main strength, sometimes a company is forced to give up other activities. In addition, more and more companies abandon too distant areas of its usual slot after trying unsuccessfully to penetrate and make it a name.

A second strategy is to maximize concentration strengths against weaknesses of competition in the most favorable markets with the right products.

In sum, the segment of its market, find a niche (a crucial point of concentration) in which it can operate successfully, understand what consumers are looking for that niche and meet your expectations, distinguished from other companies.

  • Review your plans for the sector
  • Review their plans in the following areas:
  • Products and services
  • The organizational structure
  • Marketing
  • The production
  • Human resources, information, material and financial.

Run fast and good action plan

Run fast and well the action plan is to do the right things in the right way at the right time. Is to execute the plan in a rigorous way is to check the results, the plan according to changing circumstances is constantly adapting.

Execute the plan, but is also monitoring the allocation of resources. The business leader must ask where the results are likely to be the best and focus on these results, the resources of its most successful and productive business, especially the best people.

Execute the plan, but also to evaluate the results by comparing the action plan. How we got what we expected? Were goals the right ones? We must constantly review its action plan according to market developments and economic conditions.

Finally, in times of economic recession, facing the turbulence, the first task of a businessman, according to an eminent author and management consultant Peter Drucker, “The first task is to ensure the survival of the company, strength and the health of their structures, their ability to withstand a hurricane, to adapt to a sudden change in the weather, enjoying the sun shines".