The Covid-19 (C19) pandemic has had a massive impact on the global economy. It is estimated that major economies will lose 2.4% of the value of their GDP in 2020 and the unemployment rate will dramatically increasein most countries.
Here in Nigeria, C19 has forced many small businesses to close their doors, lay off workers, and/or change the way they do business. The economy is experiencing a substantial slowdown from which it may take many months to recover.
Fortunately, it appears the social isolation techniques prescribed by the Nigerian Government have succeeded in slowing the spread of the disease, as the infection rates are currently lower than analysts had predicted. The last two weeks have seen the country gradually reopening the economy. In a climate of uncertainty, many businesses are grappling with the unknown and their future continues to hang in the balance.
Nevertheless, it is important to prepare for the aftermath of the lockdown, and to think of new ways of operating. Recovering from C19 poses some unique challenges for micro, small and medium enterprises in Nigeria. They must quickly adapt to new rules and deal with some long-term changes in the economy. This article will share a few important tips for business owners.
What Changes Will Occur After COVID-19?
The pandemic has caused significant disruption to businesses the world over. This disruption may continue for several months, even after the virus has been brought under control. Some of the potential long-lasting effects of C19 on businesses include:
Long-term Social / Physical Distancing Measures
It is very likely that social/physical distancing will remain in place for many months to come. This means:
• Small businesses will need to comply with additional government regulations
• They may need to limit how many people are in their space or use their services simultaneously
• Additional protection will be required for employees to keep them safe. This may include barricades, hazmat suits, masks and hand sanitiser dispensers.
Cash Flow Challenges
The slowdown in economic activities means that most businesses will have less cash flows in the coming months. Small businesses which are heavily leveraged will struggle to survive during this time.
Disrupted Supply Chains
C19 has severely impacted international supply chains. As a result, many businesses have found it difficult to obtain the products, equipment, parts and raw material inputs they need.
Higher Costs with New Supply Chains
Many Nigerian business owners became aware of their over-reliance on Chinese products during the pandemic. Some businesses will seek to mitigate this by sourcing more raw materials locally or sourcing from markets other than China. This may however come with higher production costs since China is historically the most competitive source for most products
Certain Sectors Heavily Impacted
The travel/tourism, recreation, and hospitality sectors are in particular, expected to remain in a decline in the coming months. Businesses operating in these sectors will have to make sweeping changes to their services in the months to come.
How Small Businesses Can Succeed In the Post COVID-19 World
Small businesses will face some major challenges in the coming months. However, there are also opportunities. Here are some tips for helping your business survive in the new C19 world.
Apply for the Small Business Assistance
The Central Bank of Nigeria has already announced wide-ranging relief measures to help businesses deal with the economic downturn associated with COVID-19. These measures range from low-interest loans to one-off grants and subsidies. Now that these measures have been finalised, businesses must get themselves ready to prepare and submit their proposals to the relevant government agencies charged with the disbursement of these grants and subsidies.
Renegotiate terms of contracts and debt
The Central Bank of Nigeria recently lowered interest rates from 9% to 5% in an effort to help the economy deal with the C19 crisis. Small businesses should take advantage of this change by proactively approaching their banks to renegotiate the terms of their loans.
Some banks are allowing businesses defer interest payments on outstanding debt and even repayments of principal sums. Talk to your bank’s SME desk to learn more.
There may also be opportunities for businesses to renegotiate rental contracts and leasing agreements. It will be a renter’s market in the months to come as some businesses struggle to survive. So check if your landlord is willing to give you a better deal.
Prepare for additional demand
Social isolation measures mean that most businesses are currently experiencing a partial or complete slowdown in demand for their products and services. However, as government restrictions are slowly eased, consumers will eagerly re-enter the market.
Retailers will need to have sufficient inventory to deal with the sudden surge in demand, while manufacturers should be ready to re-open at full capacity. Consumers will have pent up “spending energy” and a long list of items that they need to buy.
Create new sales channels
The C19 crisis has highlighted the importance of multiple sales channels. Businesses offering online sales, home delivery and takeaway services have been able to continue operations, while less flexible business have had to close their doors.
Making additional sales channels available will continue to be important in our new C19 world. Many consumers won’t want to leave their homes to make basic purchases and will prefer to have them delivered. Restaurants, beauty salons, and other service business may find that customers prefer takeaways or home delivery or home services. Consider offering your products and services in a wider variety of configurations.
It is also be a good time for small businesses to rethink their business models and take advantage of market opportunities that may emerge as a result of the present times, without a significant increase in costs.
. Prioritise the safety of your customers
Consumers will prefer to visit businesses which have the appropriate safety and health precautions in place. These include:
• Hand washing facilities
• Bottles of hand sanitiser for employees and customers to use
• Plastic gloves, face masks, paper towels for employees
• Barriers to protect staff and customers
• Signage to remind people of good hygiene practices
Having these elements in place will make your business seem like a safe place, encouraging customers to return. Though this comes at an additional cost, it should deliver a competitive advantage against businesses which do not implement these types of strategies.
Evaluate short-term liquidity
The decline in economic activity caused by COVID-19 means that most small businesses will have reduced liquidity. Many businesses will find themselves in a perilous situation with insufficient cashflows to sustain the business.
To survive this period, your business must maintain strict discipline in terms of how capital is used. Receivables and inventory should be managed carefully and unnecessary expenditure eliminated. Curbing losses and leakages will become imperatives for survival. Failure to do so may mean the business struggles to find sufficient cash to pay bills and continue operations.
Although the coming months may be difficult for many businesses, planning ahead will help you succeed in these difficult times. Like they say, when the going gets tough, the tough gets going.
• Olatunji is the managing director of Arcane Insights Limited.