The entrepreneur should not panic

Business was at its peak for the last one decade. However an economic downturn is unpredictable, but a reality which is part of the business cycle where the economy is in decline. This phase is said to mark the end of a period of growth in the business cycle. 

Economic downturns are usually classified by decreased levels of consumer purchases (in particular of durable goods) and, secondly, reduced levels of production by industry and business. Our crisis is attributed more to instability rather than the impact of a global meltdown. Our GDP growth is expected to be 2.5, as PSDP has been slashed to half, whilst India and the Bangladesh economy is expected to grow at GDP of 6/7. 

The economic downturn effects small entrepreneurs and their businesses who struggle to survive and keep on growing. However an economic downturn opens opportunities as well. A well-organised company can translate the opportunity by taking away business from the competitors. Resourceful business house may capture the opportunities, from an economic downturn, by innovative methods of doing business, which were never practiced during a period of growth. 

The worst sufferers are cash strapped SMES. One must take the challenge of navigating his business through a financial meltdown by realigning his business with the current economic realities in Pakistan/globally. 

The need is to refocus on your core clients/customers, reduce your static operative expenses, conserving cash, and manage more proactively, rather than reactively. I quote George Soros here "Stay away when the greed is on and be greedy when the fear is on." 

TARGETS AND GOALS The immediate goal is how to survive the current economic impasse, turning to a more efficient and cost-effective performance. The second target is to expand the business during a financial meltdown. You should grow the customer base, improve efficiency, reduce costs, protect assets and lastly conserve cash. The entrepreneur should not panic as historically recessions do not last forever and focus on what one can control, disregarding media rhetoric. 

The effective way is to communicate with all. The foremost is to renegotiate with all and develop a win-win approach in negotiations with all vendors, ensuring a favourable bottom line. The fact remains that during a melt down, one has to diligently monitor the cash flows. The idea is to know how to monitor, protect, control, and use the cash to make it work. Cash flow forecast be made monthly to ensure expenses do not exceed receivables. 

A good entrepreneur must convert excess obsolete inventories into cash. The core issue is to reduce the amount of your inventory without loosing sales. One cannot discount ensuring timely collection of accounts receivables. The key to success is an efficient collection system that generates timely payments. 

It is imperative to renegotiate with suppliers, lenders and landlords and to re-evaluate staffing requirements, shopping for better insurance rates, but don't cut your advertising cost to increase brand awareness and generating additional demand of products and services. 

Business houses are well-advised to consult advisors who give professional advise on all faculties of business. No one can dispute that a good entrepreneur will slash across the board expenses by 10-15%. The most difficult challenge is to convince your banks to stay on your right side, as banks become tough and are out for recoveries. You must convince the banks to re-negotiate as it is in mutual interest. 

Most of the entrepreneurs are confronted with high rates of interest; benchmarked to the world, creating a financial and liquidity crunch. As utilities have gone sky high, the labour, due to inflationary trends, demands a high salary, thus a businessman is caught between the devil and the deep sea. A businessman, also a human being, comprehends that redundancy will cause hardship to employees and will create social problems, thus the business house averts retrenching labour, groomed and skilled at the cost of the entrepreneurs. 

The global melt down has not effected us much due to a strong prudential and regulatory regime. Banks can be convinced by presenting business and action plans. The key is to ensure that your lender will work with you, but frequent communication is critical to keep the banks soft on you and of course, paying on re-negotiated schedules. Moreover the Pakistan business community is more prone to cash than credit cards. 

We are now pinning hopes on the current G-20 summit to enforce a stringent regulatory regime to curb financial adventures by callow bankers and discipline the financial system globally. The economic glut since the last quarter of 2008, has caused closures of small businesses and created unemployment. However signs of some recovery, by 2010, are in sight. 

Let us keep our fingers crossed. The maritime sector suffered the worst impact causing bankruptcy to ship-owners and allied business. Now that excess tonnage is being scrapped, there appears to be some relief by 2010/2011. Most of the maritime port projects are either slowed down or deferred. I am sharing my experience of the last 12 months, my clairvoyance spotting economic trends.