As the world emerged from the pandemic last year, business sentiments in Singapore significantly improved. In fact, according to National Business Survey 2021 - 2022, 87% of businesses do not foresee any worsening in local economic conditions. Yet, increased labor costs, stalled supply chains, worsening inflation, and rising interest rates indicate otherwise. Analysts predict a looming recession and severe shift in the coming months.
As a globally-exposed economy with a trade-dependant currency (SGD), Singapore is notably vulnerable to shifts in global growth expectations. The impact of any economic slowdown is felt mainly by small and medium businesses. Although nobody can predict or control what happens to the economy, there are things companies can do now to prepare for the financial implications later.
Here are five prudent practices to recession-proof your business:
Better Cash Flow Management
Clients cutting back on spending is the recession's first and most pronounced effect. Different industries feel the pinch at different times and in diverse ways. Deals cycles are prolonged, and eventually, the sales numbers take a hit.
A quick litmus test on the financial health of a company includes:
- How much in cash reserve is really in the bank?
- How much of it is actually available on short notice?
- What revenues are coming in when?
- What resources are going out and when?
Answering these questions equips tight cash flow management - the most crucial tool for businesses to withstand an impending economic windfall. The solution is to build a substantial cash reserve and protect the business cash flow. The standard business rule is to have enough cash to cover at least six months' worth of expenses, including payroll. The latter requires a diligent system of sending out invoices and reviewing receivables promptly.
Diligent process to manage account receivables
Statistically, almost half of all invoices are paid late. Especially when businesses go into conservation mode, a standard 30-day receivable period can extend to 120 days. The accounts receivable team must be sharp to maintain records of all customers for their payment behavior and take quick actions to mitigate any emerging patterns of consistent delay in payment.
Apart from automating the invoice generation process, the solution to keep things humming along in every economic condition is to apply for financing, attenuating a cash flow crisis. A line of credit or another flexible financing option, like an advance on future payments, could be a real lifeline.
Accurate forecasting of future cash pipeline
Precise forecasting feeds the business intelligence to support future expansions and operational decision-making. As a best practice, though, evolving variables and external drivers warrant active checks and running frequent forecasts for the business. Consequently, it reduces the reaction time to any projected cash issues as they become pronounced.
On one side, altering the financial drivers in the business forecast model allows for scenario-planning of different strategies and options. This answers questions and gives hard evidence on which to base decision-making and strategic outlook over the coming months for the business; however, many of these will be for long-term planning as and when the restrictions ease.
Alternatively, securing investments or a line of credit that is 25% more than projections is another way to build contingency and gives the business some breathing room.
Build network of backup suppliers
For manufacturing heavy businesses, suitable suppliers play an essential role in overall business growth. An ideal supplier should provide products at a competitive price, without compromising on quality, in a timely fashion. A backed-up supply chain for any reason, as witnessed during the pandemic, literally had retailer stores pull their shutters down.
Managing an effective supply chain requires an efficient mix of human resources and technology.
For a start:
- To maintain business continuity, weed out underperforming or unreliable suppliers before an economic downturn.
- Better and transparent communications have proven key in developing more robust relationships with stable suppliers, ensuring both parties get through the worst downturn together.
- Understanding which tasks could continue to be performed remotely and which required workers to be on site could ease pressure too.
- Leveraging local support, for example, EnterpriseSG enables collaboration among supply chain ecosystem partners. They can share operational data via Singapore Trade Data Exchange, so players along the supply chain can gain greater visibility. This, successively, will better optimize operations at the more comprehensive ecosystem level.
Keep morale high and implement technology solutions
Obscuring the obvious, through tough times, especially for SMEs, is tricky. Slow sales and slower foot traffic are evident, especially among the employees. Downsizing to save the business is understandable but equally problematic.
The first action should be to keep the morale up. Look for ways to reduce staffing expenses without cutting jobs could probably save the world from another "The great resignation" phenomenon from repeating itself. Next, explore digital financing solutions that can help businesses solve these challenges. But for most small and medium firms implementing such solutions can be expensive and difficult to manage.
banco endeavours to address that by making cash and working capital management solutions readily available to SMEs in Asia. Award winner of the Global FinTech Hackcelerator 2021 by the Monetary Authority of Singapore (MAS) and the Singapore FinTech Association (SFA), banco's solution is recognized for promoting financial inclusion and sustainable development in the financial industry.
With a minimal learning curve, businesses can implement just a single platform to strengthen cash flow and improve supplier trade relations. An easy online application in three easy steps can lead to instant approval and same-day funding on invoices.
banco's technology enables businesses to sign up and, in the next 10 minutes, submit digitally signed documents and invoices for the funds to be disbursed to the company's business account. There are no hidden fees in the process; hence, businesses can have better cash flow management with predictability.
Check whether your business is eligible for the product by filling up a simple form in just a few minutes; improve your business certainty and cash return by getting all invoices paid on time.
In the Asian context, the median duration of recessions has been three quarters, similar to those in advanced economies and non-Asia emerging markets. In any case, a prudent business owner must plan well, be proactive and micro-observant to maintain business continuity, and come out as a winner once the economies rebound.
Businesses can remain resilient by being aware of the situation, early planning, and choosing the right technology partner like banco.