In the third quarter of 2015, Singapore narrowly missed entering a technical recession, as Gross Domestic Product (GDP) rose a scant 0.1 percent over its 2.5 percent drop in the previous quarter. While the Singapore central bank remains optimistic, projecting moderate growth in 2016, concerns remain that this growth is considerably weaker than earlier projections.
Does this herald another catastrophic financial collapse for Singapore? With unsteady global economic conditions and weakening prospects for global growth, it is almost inevitable that Singapore will face another recession sometime in the future.
Small-Medium Enterprises (SMEs) under a recession
While businesses as a whole suffer during a recession, it is undeniable that SMEs take the brunt of the economic downturn harder than corporations and big businesses that see their annual profits in the billions.
The 2008–2009 recession affected businesses of all sizes, resulting in more job losses in one year than in any other year during the 2002 to 2012 period. More than 336,000 jobs were lost in 2009, with medium-sized firms losing the most jobs at almost 147,000.
- SME Research and Statistics
It is true that most small businesses live on the knife edge, where obtaining and retaining customers is what keeps them from the brink of collapse. An economic recession hurts SMEs in many ways, chief among which are:
- Loss of Demand – As small businesses (especially B2B enterprises) rely on relatively few customers that purchase consistently, the loss of some of these customers due to financial constraints can have significant effects. If a large client goes out of business, not only does the SME lose a customer, they may also fail to get paid, and may incur additional costs from having excess stock that is difficult to off-load.
- Reduced cash flow – The nature of SMEs is that money comes in, as payments are made by clients, and money goes out, as it is channelled back into the growth of the business, in the form of salaries, inventory, advertising and so on.
A delay or reduction in the cash flow impacts SMEs greatly, as without large cash reserves, they may not be able to sustain the cost of doing business. Reduced availability of credit also makes borrowing from banks difficult, and these businesses may wind up declaring bankruptcy.
- Cost reductions – Financial shortages usually lead to budget cuts in the hopes of saving the business. One of the first steps taken is to lay off employees, which increases unemployment as a whole and places more strain on remaining employees to complete the same amount of work with less people.
Reducing costs can sometimes also take the form of cuts to the quality of goods and services, which may damage the reputation of the business in the long run. SMEs may also cut spending in other avenues such as marketing and distribution in the efforts to keep their business afloat.
- Increased costs – A lack of funds moving in and out of the country can result in more competition over limited resources, which creates inflation. Inflation results in the increase of the cost of goods and services. SMEs who rely on other businesses may see costs go up as other businesses increase prices, and may be forced to make more cutbacks.
Surviving a recession
Despite seemingly having the odds stacked against them, it is not impossible for SMEs to survive, or even grow from a recession. After a recession, the market will rebound, and businesses who understand the conditions will be in prime position to take advantage of it. But all of this is only possible with the right tools and strategies.
Given the dire projections of financial analysts, it is clear that the time to prepare is NOW. Here are some of the things you can do to ensure that your business is adequately prepared to weather the recession and come out of it on top.
Invest in business automation
Reports and dashboards
Preparing for an economic downturn relies on having information about your business and your market in order to accurately forecast conditions and react accordingly. This means not only having the information available on spreadsheets, but being able to read them in a way that gives you real, actionable data.
A business automation solution like Second CRM with powerful reporting and dashboard capabilities allows executives and business owners insight into important performance markers like employee performance and sales statistics, enabling them to make the best decisions.
An intuitive reporting system will help you track sales and identify trends, allowing SMEs to leverage market conditions for their benefit. This can help a business maximise sales even in the middle of a recession.
While many corporations seek to cut costs by eliminating marketing spend during recessions, more targeted, budget-friendly marketing strategies can help SMEs take advantage of a customer base looking for the best possible value for money.
Business automation can help you do this with email marketing, which remains the best digital channel for ROI.
Using a business automation system like Second CRM as the workhorse of your business allows it to keep track of everything for you, from leave and invoicing to marketing and payments. This gives you extensive insight into all incoming and outgoing expenditures, allowing business owners to control these areas more effectively to manage funds both during and after the recession.
Automating workflows also helps reduce the strain on remaining employees in case of layoffs, allowing businesses to function during recession periods with a minimum of disturbance.
Build a cash reserve
Business owners should also have savings that you can fall back on to sustain your business during tough times. It is recommended to keep a cash reserve that can cover three to six months’ expenses, which will be enough to see your business through the recession.
As with any situation where you need to save, this may not be easy. It requires consistency and dedication, as money in a bank account is only sitting there, not helping your business. But when it comes to the crunch, you will be glad it’s there.
These steps will guarantee your business the best possible chance of surviving and achieving growth from an economic recession. While recessions can be difficult, they should be seen as opportunities and experiences instead of simply obstacles. With the right tools, SMEs can ride out the economic downturn and hit the ground running during the recovery, maximizing productivity and driving profits all the way.
Productivity and Innovation Credit (PIC) Grant
Get 60% cash rebate off your Second CRM software costs with Productivity and Innovation Credit (PIC).
Second CRM software solutions are one of the claimable items under the Productivity and Innovation Credit (PIC) grant approved by IRAS. With this grant not only do you get to run your business better using a well-recognised software in the market but you are also able to get your purchase cost reduced to ease the initial investment. Click here for more info about PIC grant.
* Applicable only for SG registered companies.
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