Keeping afloat during a business crisis

Keeping afloat during a business crisis

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By Kudzai Chimuteka

THE recent prevailing economic climate has posed a threat to entrepreneurial activity. Some already taking trips down memory lane to the casualties and fatalities of the year 2008 which left the GDP contracted by an all-time record of 17.7% according to the World Bank. 

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Alarming reports by Trending Economics reveal that Zimbabwe’s annual consumer price inflation jumped to 131.7% in May of 2022, from 96.4% in the prior month. As per multiple reliable reports, the Zimbabwe Stock Exchange (ZSE) investors incurred up to ZWL$800 billion in cumulative losses in just a space of two weeks in the month of May 2022 due to a variety of reasons.

Furthermore, the Confederation of Zimbabwe Industries (CZI) estimates that the capacity utilisation for manufacturing firms in 2022 is just above half, pegging it at 56,5%. All of these burdens come in accumulation to a country already battling the after effects of COVID-19 and some parts of the country still to fully absorb the shocks from Cyclone Idai.

On the other front, the Russia-Ukraine conflict has caused the prices of fuel, crude cooking oil and fertilizers to fuel global inflation. Topping it off with an agricultural season which was not one of the best, it is now a sink or swim affair or rather fight or flight approach to entrepreneurship.

Even throughout the storm, the International Monetary Fund (IMF) still projects Zimbabwe’s economy to grow by 3.5% in 2022.  This pinpoints that there is still hope at the end of the tunnel. Some will even make fortunes in these dire circumstances. How are these going to make it? In this article we will delve into the strategies that can be employed by entrepreneurs to keep their businesses afloat throughout the course of the storm. 

  1. Go back to the drawing board

There is no sugar-coating the fact that once a crisis has hit, the purported pursuit of seemingly luxury and non-remunerative ideas immediately vanishes. It’s time to rationalise business activities, customers, operating segments and product lines. History has it that short-term survival takes precedence over long-term growth until we are out of the woods. If you are fast forgetting, go back to the drawing board to identify the core business of the company and focus on only those that provide the best returns for the finite resources while holding the most promise for the future.

  • Understand your capital structure

Capital structure alludes to your mix of equity shares, preferred shares, bank loans, short-term credit, supplier credit, and convertible debts. Out of these, examine which ones need to be repaid and when, which are affected by interest rate increases, tax rates and which could bring your business down if you default. Financial plans that worked during the last decade may be too risky for the coming years. Restructure your loans, obtain new lines of credit and maintain enough cushion. Keeping around a large amount of cash can be damaging during inflationary times. As inflation rises, the purchasing power of your cash savings may go down. Consider investing that money to keep up with rising market prices. It’s a good idea to consult with a financial advisor to determine which kind of investments make the most sense for your specific situation.

  • Managing expenditure

Businesses probably experience inflation the most through the increased costs of raw materials, supplies, and services needed to run the company. Before you start making any major strategic changes, start your conquest of inflation by looking for opportunities to cut waste within your business. Can you pivot from changing to cheaper alternative raw materials while maintaining quality? Can you find monthly subscriptions or services to cancel? Can you close your business on Sundays because it’s the slowest day of the week? If you can cut waste, you can decrease the amount of cash leaving your business giving you a more consistent cash flow and helping you through inflationary periods. 

  • Employee Retention

An important challenge in the midst of the exodus of people from the job market is to keep morale high and prevent attrition. Losing a key employee means days or even months of lost productivity and expenditure of additional efforts to find and train a replacement. Consequently, it’s especially important to be in constant communication with employees and at least be aware of their plans for switching jobs. Be more flexible in accommodating their personal needs, such as letting them work from home. Remuneration schemes that mix hard currency with local currency can be handy in employee motivation. A natural tendency during these times is to apply a universal axe and order an across-the-board cut of salaries, expenditures, and headcount. An obvious outcome of such actions is low morale and further attrition of talented employees. This must be avoided.

  • Do not give up.

The good thing about economic downturns is that they will not be around forever. Even the strongest and most violent storm will eventually run out of rain. Business owners, like yourself, are the heart of Zimbabwe, we rely on you! Your resilience and grit have helped you push through the pandemic and lockdowns, so do not let a little inflationary period get you down. With the right strategy and execution, you cannot just get your business into a more stable cash flow situation but you can also set your business up to run more efficiently after the crisis.

Kudzai Chimuteka is a student at Chartered Accountants Academy who has a deep passion for entrepreneurship and is part time writer who writes in his own capacity. Can be contacted on +263776502995.

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