Recommendations / Suggestions for SMEs for the current situation /during lock down.

Recommendations / Suggestions for SMEs for the current situation /during lock down.

By Imran Ahmed Bilal Convener Finance Committee, Union of Small and Medium Enterprises. (UNISAME) and his committee

“SMEs have been an important component of Pakistan’s economy and that it can play a pivotal role in the days to come, once COVID-19 Pandemic is controlled. SME sector provides employment to 80% of the non-farm labour force in Pakistan and contributes 40% to GDP. The case of its economic significance is well established and cannot be debated.

There is no doubt that small businesses can face the hardest hit due to this Pandemic. Industrialists and bigger businesses have higher chances of surviving. The reason being that small businesses have lesser liquidity, smaller cash flow which can last for no more than a few months, with something invisible HUGE like COVID-19 can put a devastating effect on small businesses and its owners and finally trickling down to its employees.”

To fight in this turbulent time and times coming ahead in 2020, what SMEs can ease the effects of COVID-19? There is no clear cut and vivid answer for this question, however following are few suggestions that can help SMEs to mitigate the economic turbulence for the next few months to come until the effects of COVID-19 completely vanishes or at least the pandemic becomes controllable:

1. Extension in contract tenor: If any performance or purchase contract is due within the next three to six months, particularly those backed by a bank guarantee or letter of credit (LC), SME can initiate discussions with the counterparty for extension of the contract period. This will mitigate any financial loss that may arise from performance risk.

2. Request for extension /Rescheduling in loan Maturities/Tenor: SMEs may request banks for a temporary extension in their upcoming /future loan maturities. This will help maintain the liquidity flow and avoid a cash crunch like situation. In this regard SBP has already announced relief packages and asked the banks to relax maturity periods and reschedule loans to maintain liquidity in the business cycle/system.

3. Review the foreign contracts & Contract Payments and also consider forex trade hedging strategy to avoid PKR/FCY volatility: Given the present forex scenario which is likely to persist for some time, those SME’s who are dealing in Foreign Trade business (import /export) can review its contract and contract payments which are likely to get due in the coming weeks or months, in this regard they should asked for buyers credit facility to manage their cash flows /liquidity. Further, they can also consider forex trade hedging strategy subject to availability of hedging lines to avoid PKR/FCY currency volatility in order to avoid/reduce foreign exchange losses which can occur in future due to uncertain economic situation .

4. Review your Capex plans: Unless there is an irrevocable purchase contract for incremental capacity, SMEs should slow down fresh capex or capital expenditure plans for the next six months or so until things start getting better and economic conditions stabilize. Eventually, the world will return to new normal, until then small business owners can stay positive and hold on to every emotional, economic and innovative tool that they have till things smooth down.

Meanwhile, use this time as ‘A window of opportunity’- We all know that in past in first place, we rarely had time rather an an ample interrupted time. We can make best use of it by evaluating:

Our working strategies

Solutions to maximize profits from our current strategies

Innovative future plan and idea that can expand our businesses both vertically and horizontally.

By staying strong, strategic mindset and using this ‘window of opportunity’ you may build up a better and new ways to expand your businesses. We have learnt from this pandemic that opportunity lies digitally rather than physically and that more and bigger opportunity lies in IT/Ecommerce. This will not only save your time but a lot of resources that can be utilized in more constructive usage with higher revenues. The true upside is the dividends they will continue to pay well into the future.

5. Rethink on your target market: As the pandemic is reshuffling the opportunities it is also reshuffling the target markets. Change your thinking pattern to consumer’s thinking. Everyone is sitting home and in this situation what do you want to buy? How do you want to buy? What are your requirements? How would you want to expand yourself without exposing yourself much? Which consumer goods are shifting to new markets? Which markets are expected to do better in the coming days? Which boarders will be named differently but will work conjunctly? How do countries with coherent strategies survive and how to tap that market? Will the new normal be ‘work from home’? Who are your competitors? What “Else” and ‘New” can YOU offer? THINK THINK THINK………. RESEARCH RESEARCH RESEARCH…… making the best use of this “window of opportunity”.

Due to safety concerns people are locked at home, country-wide quarantine, travel restrictions, social-distancing and most importantly decline in purchasing power and sharp fall in consumer spending, resultants are that markets are losing its vitality, profits are on record falls, businesses are moving towards downward spirals. Thinking of other innovative techniques is the only solution to survive. Ask the following questions to yourself?

How will your business grow with the clarity of one single most important factor that will impact the business?

What are the apparent and contingent risk in your business, and what do you do about it?

Do you have an adequate resource for the growth and if not where, and how you reach out to get them so your business creates value in the long run?

How do you review your business in terms of performance and what can you do to make it more execution-oriented?

How can you engage people on board to take ownership?

Also, one needs to understand several financial and legal aspects about businesses to mitigate risks and cut down on their losses. To understand what can and cannot be done at the time of lockdown, they should considered the following,

1. Maintain Cash Reserves / Liquidity: – Companies should ensure adequate liquidity to weather the Corona-storm. Vital questions to ask– whether we can withstand some more of such recessive quarters if the economy takes a dive down? Do we have contingency plans? Effort should be made to maintain cash reserves / Liquidity (according to their business cycle/ WC needs) to coop up the need of their business post COVID-19 situation.

2. Review P&L statement for cost optimization avenues: This time offers the window to review various cost elements in the P&L statement. SMEs should utilize this opportunity to identify and discuss with domain experts on various ways to optimize recurring cost items that can be done without impacting the overall productivity.

3. Conserve human resource: Attrition or loss of critical human resource too has a significant financial implication in the short to medium term therefore; SMEs should strive to keep their important people in place during these times. Benefits and incentives can be structured based upon the period of service to increase employee stickiness.

4. Enforce Force Majeure Clause: – This is a very important clause which should be considered by SME’s while establishing or entering into a new contract as many SMEs are unaware of this clause and have never considered it while entering into the foreign or local contacts/agreements.

“A Force Majeure clause is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. The provision may state that the contract is temporarily suspended, or that it is terminated if the event of force majeure continues for a prescribed period of time.

The list of events to be included is a matter of negotiation between the parties. A typical list of force majeure events might include war, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies, pandemic and acts of state or governmental action prohibiting or impeding any party from performing its respective obligations under the contract”.

In current economic crises Companies are worried about the consequences of the non-fulfillment of their contractual obligations. A provision in the clause in a contract or agreement that can protect companies from such defaults is the – force majeure clause – which defines events that excuse the non-performance of a party. A contract may either explicitly list all qualifying events, or generally define a force majeure event as “an event beyond the parties’ control”, leaving room for interpretation. Thus, companies must look for examples of relevant language such as “disease,” “epidemic,” “pandemic,” “quarantine,” or “acts of government,” which may be interpreted to include the COVID-19 outbreak and excuse its non-performance.

Further in this way businesses insurance should be claimed by SME’s, those who are affected by said pandemic, however in normal business insurance policies these clauses are not included in the insurance policies and not either claimed by the insurers. Keeping in view the current pandemic scenarios these clauses should be included in business insurance policies in future.

Utilization of Digital / E-Commerce Platform:-

Think out of the box solutions for your customers during current lockdown period. You can start marketing and selling of your products and services through Online/E-commerce solutions and for that following are the suggestions that can help SMEs to keep and engaged their customers during this time and at least keep their business at the forefront of customer minds.

Make or improve your website: – Presently if you don’t have a website of your company and you are not offering online services and your product offering then start doing that during lockdown to engage your customers. Further if you already have a website then Have a look at your website. What improvements can you make right now? Chances are, you will be receiving tons of new visitors to your website during this period and you want to put your best foot forward.

Working on website improvements or a complete overhaul during this time (only replacing the site with the improved version once complete) will ensure no downtime and be an efficient use of this period.

Invest in Online/Digital marketing: – Invest in digital marketing (if you can). Many companies have currently stopped working on marketing strategies and marketing itself, which means that if you stop marketing efforts it can totally blow you out by your competitors from the water. On the contrary your right marketing planning can do the same to your competitors with less spend or effort than you might have needed before.

The following are the best ways that you can invest into marketing at the moment is:

With brand awareness focused on keeping your business at the top of your customers mind (even in their downtime)

By working to intensify online selling that can increase your sale and it will help you to be lesser affected by this economic crunch and can to some extent up hold and ensure your business’s economic status. Also, it will bring in new customers and keep your currents customers to stay connected with you, engage with and stay loyal to you.

Look into online offerings: – If you don’t already have an online store or any online working, look into this and see how it works. Consider it well and keep a reality check on whether you can deliver your product during lockdown on time. Home deliveries and curbside services can be a good means to increase your sale. Special services and assistance can be provided to old, sick and strictly quarantined people. If you are already providing such services you can waiver off the service / delivery charges in the midst of this time of crises, this will give a humane reputation to your company and you can cash on this after the crisis is over. Further, you can hire servers and freelancers who are out of work as delivery drivers and corresponds. You can also make a contract with service delivery providers like Uber /Creem and Bykia to compromise, temporarily minimize or cancel the cost of deliveries for you and your customers.

Effective use of social media Platform: – Social media, newsletters and all forms of digital communication are more important than ever. Utilize these to stay in touch with your clients throughout the lockdown period. Communication through these platforms in some cases will ensure your client’s engagement with your brand/product and keeping up with your shared content.

Take customer/Public Feedback by Creating FAQs: – Prepare a list of frequently asked questions in case if any question that may come to your customer’s mind. Also keep a suggestion and question portal for your customers if they want to ask anything further or regarding your business during COVID-19 and how are you maintaining the precautions as dictated by the government. Make this detail and reassurance available to the public, not just to your current clients.

Engage your customers & Keep communication open: – Ensure that client-facing staff are keeping lines of communication open with your existing clients. Marketing and retaining existing clients is a lot easier than acquiring new business at this stage, so ensure that you’re servicing your current clients exceptionally well. Don’t forget to inform them first, if any upcoming special offers, discounts, etc. are coming.

“In addition to the above recommendation you can also find ways and opportunities to improve your current business model. It is never nice to capitalize on events such as this, but they can also be a wake-up call to reconsider how you have been doing business. In this case, is your business model able to survive the changes that will come from the COVID-19 pandemic? How do you expect your customers to behave moving forward? What will and won’t matter to them, and how can you accommodate who will likely be a new type of customer? Can you digitize any of your products or services, and start offering them online? Can you implement technology to balance any loss of earnings by offering new ways to connect with your customer.

“There is a tip SME’s /Entrepreneurs, that is they need to start implementing and planning at least for the next couple of months until to get out from current pandemic.”

“Don’t panic, take care of yourself, keep calm and try to find out some innovative ideas which can improve your business OR can be effective for your business in upcoming days.”

This can be difficult especially when cash is running out, but remember to take care of yourself in first place – keep calm, stay hydrated, eat well, work out at home, play indoor games, call your family and friends. Your positive attitude will keep your family, staff, subordinates and associates positive. The positive mindset is a fertile ground for innovative ideas, it is not only you many are much less blessed than you are and facing even a rougher and tougher time than you, keep balance in life and don’t take drastic decisions. If you need to take some out of the mill decision take a step back and deep breath, assess, reassess, take opinion from trusted people and then take decision. It was not always like it and it will not always remain like this

If Allah is making you to go through it he will make you grow through it. Almighty has a plan – Trust it, Live it, Enjoy it.

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