Tag Archives: Business finance

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Coping through COVID: Less Obvious Strategies for Growth Businesses to Survive the Pandemic – SMF Chirag Shah, Executive Chairman, Simfoni

To say the COVID-19 pandemic has been a test for businesses would be an understatement. Throughout the course of the past 12 months, businesses have been forced to make serious adjustments to their day-to-day operations.  Digital-savvy companies might have found this easier than most, but even those at the cutting edge will have found themselves scrambling to re-assess their expectations just to stay in business. There will no doubt be start-ups out there that have actually benefited from the crisis, but for every success story there will be countless start-ups and young businesses still struggling to adapt to the so-called ‘new normal’ in which we find ourselves.

However, despite all of the uncertainty, there are several things that young, innovative businesses can do to increase their resilience and weather the COVID storm.  Some of these ‘coping’ strategies are fairly obvious, such as securing financial support packages such as bounce back loans, future funds and innovation grants. Staffing policies such as hiring freezes and the furloughing of surplus staff will also have been a necessary measure taken by many businesses. Some may have even introduced pay cuts which, so long as they’re top-down and impact managers as much as – if not more than – those lower down the ranks, is a sensible but hopefully temporary move. The last tool in the arsenal of most young businesses will be the slashing of overheads to reduce costs – the elephant in the room during the pandemic being unused office space which can save significantly in rental fees.

Less obvious strategies for ensuring growth
The above techniques are  a good start, but what about less obvious strategies for navigating through the pandemic?  Faced with a downturn in business, the above ideas may not be sufficient to ensure business survival. And many business leaders won’t just be looking to survive but continue their growth throughout the crisis.  Forward looking business leaders should be looking at adopting a combination of light-handed and more aggressive tactics, in the right place and at the right time, to ensure their survival. These tactics fall into two categories – cost and revenue – which we look at in more detail below.

Tactics to ensure revenue growth
Revenue is like oxygen for businesses. Go too long without it, and your business will become weak and eventually fade away. Your first move as a business owner during a time of crisis should therefore be securing revenue and cashflow.  Start by removing all friction, making it easier for your customers and clients to engage with you however they wish.  For example, remove upfront fees or setup fees where possible to simplify customer acquisition, and curtail long-term commitments that might delay sign-off. Remember that your customers are most likely in the same boat you are and looking to make cost reductions, so treat them with care and double down on customer service offering whatever help you can to make their lives easier and make your services indispensable.  Finally, while trying to get money into the business might be your number one objective, the best way of achieving this might be to offer some flexibility to your customers – far better to wait for a late payment than lose the business altogether.

There are things outside of the day to day that could help businesses maintain or build revenue too. Consider diversifying your business and embracing new channels for marketing and distribution. Offer a unique service that responds directly to the events of the pandemic, such as additional customer support. Your messaging should also adapt to fit this new narrative, reminding customers and prospects that you’re very much open for business and willing to help and flex to help keep them on track too.

Tactics to effectively reduce costs
Top line revenue isn’t the only factor when it comes to business sustainability.  Businesses that don’t keep a close eye on their expenses and take advantage of every possible reduction are both increasing their viability risk as well as limiting their potential to re-invest in growth. Your first course of action should be to start the clock on all notice periods for any suppliers or facilities irrespective of whether you know you’re going to need the service or not during the pandemic period. These contracts can have 3-6 months’ notice periods, so starting the clock should be number one on your list of priorities.   Of course, if things shift positively and you want to re-engage these firms, it only takes a minute to reverse the decision.

For any suppliers or facilities that you know you’re going to need, take the opportunity to renegotiate terms, particularly if the contract period is nearly up.  Remember, commercial landlords and countless suppliers are going to be worried about their revenue too and will want to gain some security about your future business.  For instance, if you know you’re going to be using a particular service in the long term, offer a contract extension in lieu of a reduction in current pricing. Far better for a service provider to keep you at a reduced rate than to try and attract a new customer in the current economic environment.

Staffing is another area where cost reductions can be made. It’s never easy, but with the changing work environment and rapid fluctuations in customer demand for services, you may find that you have to let some non-core staff go. The job market has also been flooded with candidates, particularly those with digital skills so if you are hiring staffyou may be able to enlist the help of interns and remote workers at a reduced rate.

Risk management
As well as controlling revenue and costs, now is a very pertinent time for businesses to review their risk management strategy. With the working landscaping changing so rapidly, businesses are vulnerable to all manner of threats, from cyberattacks and supply-chain disruption, to force majeure clauses or flaky contracts that could leave your business exposed.  Carry out thorough risk assessments and learn your business’ vulnerabilities inside out so you can start building toward a stronger, more resilient future.

With vaccines now being rolled out at a rapid rate, the COVID-19 pandemic will hopefully soon be behind us.  By taking some of the steps outlined above, businesses can not only ensure their survival throughout the crisis but build for a more profitable future.  One thing’s for sure, businesses that make it through the pandemic will be stronger and wiser as a result – make sure you’re one of them.

Chirag is the Founder and Chairman of Simfoni a leader in spend management. The global company has offices in USA, Europe, Australia and Middle East. Its AI-powered intelligence solution and on-demand platform empowers procurement and finance teams to achieve rapid savings and support supply-chain sustainability with automated procurement.

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Keep Your Early-Stage Company on Track

New ideas are thrilling. So many of us are great at starting things; the genesis of an idea, the moment the lightning strikes, that flash of inspiration is pure joy. Taking your first steps into a start-up business are some of the most exciting steps. You are moving at break-neck speed to set up your platform for success.

But, as with all the greatest success stories, eventually, a wall is hit. Nothing worth having ever comes easy, and when it comes to start-up businesses, that struggle often comes in the form of early stagnation. The vision is in your head, the picture of the palace you are going to build is set firmly in your mind’s eye; now you have to go through the potential mundanity of building it brick by brick.

The unfortunate fact is, the majority of new businesses fail within their first year of trading. These failed start-ups are usually victims of common mistakes and misconceptions. Here we have some tips on how to ensure that your early-stage company becomes the success it deserves to be.

Track Your Metrics
On the face of it, this seems like an obvious thing to mention. However, new businesses, especially when low on cashflow, tend to focus mainly on profits and revenue. These are hugely important of course, but there are other data that you should be paying close attention to in order to get a rounded view of performance. Keeping an eye on the following will also ensure that you catch potential pitfalls before they happen…

Customer Acquisition Cost: How much does each new customer cost you? This can be easily assessed by dividing your total marketing and sales costs by the number of customers you have had within a specified time period. How do those figures look against your projections and business plan?

Customer Retention: Retained customers are vital for reputation and cashflow. How good are you at retaining business? Is there anything you could be doing to improve customer experience?

Return on Advertising Spending: Is the revenue you gain as a direct result of advertising sufficient for your investment? Advertising is not cheap and is always a gamble. Divide total sales by advertising spend in order to see what kind of return this investment generates.

Profit Margin: Profit is everything in the end. You must keep a very close eye on the bottom line.

Traction and Momentum
Getting things moving is widely regarded as one of the hardest things to do; getting noticed, getting talked about and getting a great reputation out there. It is a grind, but you have to keep the faith; keep pushing forward. You might have to take it one customer at a time, but, as Mother Teresa once said, “the ocean is made up of drops.” Keep pedalling and the breakthrough will come.

Momentum and passion are tough things to keep hold of on your own. Make sure you have other people around you who are happy for you to bounce ideas off them, and who will inspire fresh ideas and enthusiasm. When you are grafting away on your own, it is vital to have input from people who understand the difficulties of the process.

Delegation
As your business develops, so will your workload. You need to recognise when this workload is too much for you on your own. There is no use in running yourself into the ground before your venture has even left it! To avoid this, take a look at the workings of your business and break them down into separate roles. This could be delegated to interns, or even employees if you are in a position to afford them.

Invest Effort in Talent
When a fresh venture is your baby it is really hard to take parts of it out of your hands and into the hands of others. But this transition must be made in good time. It is essential to invest real time and planning into hiring the right people. Do not wait until it is too late and get into a situation where you have to hire fast; this way you will most likely end up with employees that are the wrong fit for your company.  Make hiring the right talent a priority well ahead of when they are required so that you can put the focus, but not stress, into the task.

Under Promise and Over Deliver
This is a good rule of business in general. This rule not only helps you to gain a great reputation but also takes a little pressure off. An example of this is always promising a later completion date on some work than you intend to deliver so that when you do deliver, earlier than quoted, the customer is happy. This also buys you time if the demands of a start-up slow down a project or task for some reason.

Self-Promotion
Don’t work in secret. Many new companies fail because they are too timid, self-deprecating or fear apparent over-confidence in their product or service. With social media being in its heyday, self-promotion is easier than ever, go for it! Also, if you are planning a publicity event or advertising campaign, don’t be afraid to ask for things. Perhaps you can get a free venue for your launch if you promise to promote the venue. The worst thing they can say is ‘no’!

The bottom line is ‘make some noise’. You might have invented the greatest thing known to man, but all you will hear is crickets if the only living thing that knows about it is your cat!

Don’t Overwork Yourself
This is so easy to do. You have to relax a little; tension has never benefitted anyone or anything. We are told from a young age that the harder you work, the bigger and better the results. This just isn’t the case. It is an attitude that will grind away at you over time, extinguishing the flame that once was your initial idea. Many studies over the past decade have proven that sleep, rest and a healthy work/life balance are essential to wellbeing and success. Take breaks, delegate, keep to sensible working hours, eat properly and keep fit.

In conclusion, perhaps the most important thing to do to keep your business on track is to look after yourself first. Keep that positive vision in your head by keeping yourself healthy, happy and inspired.

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The Pitfalls of Peer-to-Peer Lending

According to Bloomberg, the Financial Times and a handful of other newspapers, peer-to-peer lending could be headed for a collapse. What began as a new, innovative way of lending capital may have become a ticking time bomb.

The Chief Executive of Bibby Financial Services, David Postings, notes that the signs are negative:  “We are seeing signs of overheating in the small and medium-sized business lending market. Credit terms are stretched and pricing is down. It has all the hallmarks of what happened to personal credit pre-2007. There will be a crash sooner or later. Peer-to-peer is unproven through a credit cycle. The platforms are not at risk but the people who put the cash in could lose everything. If you put your money in a bank the shareholders take the hit – they are the ones taking the risk.”

Peer-to-peer
At its core, this form of lending is a more individual form of finance. It allows interested investors to loan money to inventors, business owners and entrepreneurs, based on a pitch.  Interest on the loan is set by the investor, but an attractive project or opportunity will likely receive several different loan offers, forcing potential investors to compete with each other.

As Postings has argued, interest rates may already have become too low, hinting a crash may be imminent.

For several years, however, peer-to-peer lending has gone from strength to strength.  In 2015, the market peaked at $12 billion in loans. In the majority of cases, these were unsecured loans. Another problem is that investors in many instances knew little about the businesses they were loaning money to, and no understanding of the risks they were facing.  There is also the question of the time and knowledge it takes to read the information provided by a company, and the ability to exert shareholder control. Listed equities are governed by extensive disclosure rules and rights that protect minority investors.  Peer lending does not offer these kinds of controls.

It is common for banks to face criticism that they are reckless with their risks, or even abusive to customers. However, banks have the benefit of experience. They’ve seen many financial cycles, as well as weathered frauds and catastrophes. Although a big enough crash could bring them down, they’re generally diversified enough to prevent it. Peer to peer does not offer this kind of security.

There are several peer-to-peer lending platforms. The UK’s leading platform is Zopa, which has facilitated the lending of almost £3 billion since 2005. According to their website, 60,000 investors have lent an average of £13,000 to businesses and startups.

The Case of Rebus
Rebus was a company that primarily dealt with clients who had been mis-sold financial products. Through Crowdcube, a peer-to-peer lending platform, Rebus was able to raise over £800,000 from small investors. Over a hundred people had lent money to Rebus, with amounts ranging from £5,000 to £135,000, with the promise of gains between 6.4 and 10.6 times their investment.

The fall of Rebus would be the largest equity crowdfunding failure in the UK. Investors lost their money.

Julia Groves, of the UKCFA noted: “We should be in no doubt that there will be failures like Rebus [but]…the question is whether people understand the risks they are taking.”

The case of Rebus should be a reminder that all investments can fail, all investments can result in losses. The key difference between small-time lenders that use peer-to-peer platforms and larger scale investors is a diversity of portfolio. It is vitally important for prudent investors to manage risk by spreading investments – something that amateurs will not be aware of, or be able to afford. It has made peer-to-peer appear more and more like gambling, rather than as a needed source of finance to spur innovation and small businesses.

It’s likely that peer-to-peer lending in its current form does not have long left before a crash. However, the concept of lending to small businesses will continue. Large financial institutions are starting to see the benefit, and they can protect themselves much more effectively than small-time lenders.