Surviving the tough economic conditions of 2016

By Penda Jonas Hashoongo
January - February 2016
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With an economic downturn which will undoubtedly have a ripple-effect on the cost of doing business in the year 2016, it is imperative for businesses, particularly those which are still in their infant stages, to adopt strategies which may help them stay afloat in the murky waters of the tough economic conditions that lie ahead.

This article aims to impart some of these strategies to entrepreneurs and business owners alike.

Limit expenditure

Depending on the nature of your business, you may find that cutting down on money spent by the business on things which do not directly influence the production aspect of it will help you save funds which can be reinvested into the business at a later time. In a small business, the owner can look at the budget and assess which costs are really necessary, and cut out those which are not with little difficulty.

 It may be that the business has been paying its employees overtime to do work which can be done in the normal working hours. Should this be the case, the retention of these funds may prove to be invaluable to the business’s operations later on in the year.

In larger enterprises, it is often more difficult to do this without the use of experts, who will also come at a cost. The effectiveness of tightening the belt on the business’s expenditure will only work if all the other wheels of the business are moving in the same direction.

Efficiency
If you own a bakery and it produces a certain number of bread loafs in a day but it has the capacity to produce twice as much and your primary inhibition is that you do not have the client base to consume the other half of the loafs you could be producing, then your business is operating in an inefficient manner.

This either means that you have to make alterations to your production process, or find new networks which will enable you to sell as many of your products as possible so as to enhance your efficiency. Efficiency in larger enterprises can be pillared on things like shortening meetings.

If your business has a tendency of holding hour-long meetings, then this shows a certain level of inefficiency because though constructive that meeting may be, it has taken away an hour from everybody who was in it. This hour could, depending on the nature of your business, have been used to make the enterprise more profitable.

Cheaper alternatives

If you are in an industry which is heavily reliant on imports, you may find the first half of 2016 particularly difficult, owing to the escalating exchange rates against the world’s major currencies. It will thus be better to look at alternative means of accessing inputs. Where possible, local manufacturers can be used to supply inputs at a lower financial burden to your business, compared to the normal imports. However, seeing as Namibia does not have a flourishing industrial sector, it could be that you will not find the supplier you are looking for locally, which would still force you to import the materials you need to do business.

 In this case, it would still be advisable to look for a supplier who can get you the same quality of materials at a lower price than your normal supplier.

If this is not possible, then another approach would be to make bulk purchases of inputs so as to capitalise not only on any discount you may receive from the supplier, but also to avoid factors such as an increase in prices later on. This method, however, will require significant capital, in addition to offering significant risk to your operations.

Loans

Although some would advise against this, businesses operating in sectors where growth is palpable should take advantage of the different financing options offered by commercial banks to expand their businesses, and subsequently their profitability.

A business which is extremely profitable will not feel the pinch of the harsh economic conditions as much as one which is barely breaking even.

The problem with certain local businesses and their acquisition of bank financing is that, more often than not, these funds are directed away from the growth of the business in lieu of personal use, such as the purchase of luxury vehicles which will be put in the business’s name, but will have little to no impact on its profitability.

When used correctly, however, loans and other forms of bank financing could catalyse the expansion of any business, and sometimes this can be the difference between success and failure in a business, particularly in trying economic times.  

Meaningful changes

When you have decided to take any of the above-listed measures to help keep your business profitable during harsh economic conditions, it is important to ensure that these measures do so.

There is no point adopting these measures if they only serve a remedial purpose to your operations. It is never advisable to change things just for the sake of changing them.

If the cost of transforming your organization into a more efficient business entity transcends the cost of your operation’s status quo, then it is important to gauge whether this is what is in the best interest of you and your business or not. Most will find keeping things the way they are as the most sensible option.