Impact of Current Pandemic on small businesses

All of us must be struggling through the pandemic crisis that has hit all parts of the world.  Each and everyone of us have been impacted in one way or another.  My passion being the growth of small businesses in India, i want to take a moment to share with you, what I believe will be the impact of the pandemic going forward.

I believe the impact of the Pandemic would be seen through three clear phases as follows.

Phase 1 being the Pandemic Phase which would last till June 30th, 2020.  During this period, every day life would be considerably affected and hence the impact on small and medium businesses would be severe.  Expect your revenues to fall to maybe 25 to 50% of your normal business unless you are in sheltered sectors such as pharmaceuticals, essential foods and basic clothing.  Costs would remain significant as a considerable part of labor and other fixed costs would have to be borne. 

Phase 2 being the post Pandemic Phase which would last from July 1st, 2020 to September 30th, 2020.  This would be the period when businesses would slowly and cautiously come back.  Banks would start working more closely with small businesses to support them.  Movement restrictions would slowly ease and train and plane travel within India would start normalizing.  Employees would cautiously return to office and while many may continue to work from home, where their work permits them to, a large number would start coming back to manufacturing and contact service jobs in the offices.  Revenue would start picking up and you should be able to anticipate revenues to go back to about half of what there were before the pandemic.

Phase 3 would be the recovery phase and this would last from October 1st, 2020 to March 31st, 2021.  This would partly be aided by the festival season in India and hopefully a good monsoon.  Customers would be cautious in their spending but a significant amount of pent up demand would come back.  In certain sectors such as discretionary clothing, electronics and household / lower budget automobiles, this would see a significant upswing in demand.  Many firms which are OEMs to larger manufacturers would need to prepare for a sudden tornado of demand.  This demand would become difficult to meet, given the shortage of workers in some of the Indian cities.  Small scale enterprises must prepare for this spurt in demand and V shaped recovery.  The reason I believe that the recovery would be V shaped is because, the Indian market in primarily a domestic market and while significant parts of the world have been affected by the virus, India given its size and spread, has relatively less in mortality and infections.

What then can you do as a small enterprise to get through these three phases.

Phase 1.

1. Hanker down till the storm is over.
2. Place the greatest emphasis on employee safety and well being.
3. Be transparent about cash challenges and talk to employees starting with the senior management of a pay cut to get over the crisis.  Higher the level, higher the percentage of cut, so that the lower levels are impacted the least.
4. Speak about the importance of preserving and safeguarding all jobs as we get through this.
5. Renegotiate all rental and other monthly expenses by dialoging with the concerned partner.  Discuss a lower payout and if possible a deferred payment.
6. Retire expensive borrowing with cheaper funds wherever possible.  Talking to banks to rengotaiting the cost of funds is part of this option.
7. Dialogue with customers and enquire about how they are doing.  Understand how they would come out of this pandemic and whether you need to change your product line.
8. Think of re-engineering your products and operations.  Remove or discard whatever did not work when the going was good.  If it did not work then, it is unlikely to work now.

Phase 2

1. Bring in necessary guidelines at the workplace to follow the health and safety norms that are prescribed.
2. If some jobs can be done remotely, see whether they can stay remote.
3. Examine whether the enterprise could work in two shifts to increase social distancing and yet ensure production and productivity.
4. Step up on dialogues with customers to understand their possible demand.  Filter out customers who appear to be bouncing back well and spend significant amount of time with their requirements.
5. Develop a strong online presence for lead generation, marketing, sales, recruitment and payments recovery.  Customers may still be unwilling to meet, hence if they cannot come to you, go to them virtually.

Phase 3

1. Anticipate what products would experience a tornado demand and gear up for production.
2. Have a flexible model to engage with contract staff wherever required as well as contract capacity utilization outside your own capability.
3. Talk to your banks and work out an additional line of credit for working capital.
4. Move from a large range of products and services to a shortlisted set of choices for your customers of what they would like to buy.  Focus on cutting down on products that do not sell, catalog what is left well suitably, ensure that the price is reworked to be attractive and go hell for leather for those products.
5. Be flexible in your pricing models.  In fact this is the period, when agility and speed in execution would bee crucial to success.  For these six months, focus on a forward looking three months plan but keep it rolling forward every quarter.

All the very best and reach out for more thoughts to rangan.mohan@gmail.com

Mohan