Nigeria is in a recession. The National Bureau of Statistics (NBS) is expected to confirm this in less than two weeks when it releases the country’s second quarter (Q2) GDP results. The economy had contracted by 0.36 in the first quarter and it could not have done better in the second quarter.
“Recession is like a fish out of water and the best way to manage it is to take the fish to the water/pond or create a new pond,” says Kamran Azim Head of Operational Risk at Wema Bank Plc. “Locally, the economists and policy makers are on the mode “wait and watch or sitting ducks” which will not help the situation. Any wrong decision today can have negative outcome for decades to come,” he adds.
Tension is high in the country as inflation continues to rise to record levels. Businesses are shutting down and unemployment soars as organisations reduce staff strength as part of cost-cutting measures. As gloomy as the situation seems, not all businesses will die as a result of recession, some will come out stronger. The difference between the ones that die (or go comatose) and the ones that come out stronger is, knowing what to do during a recession.
Many businesses are in a high state of confusion at the moment. Average running cost keeps rising but revenues continue to drop. Many workers bear the brunt of the situation and are being owed salaries for months. The brave business owners sack some of their workers to keep costs low. For entrepreneurs, the current situation is even worse. While they struggle to move through the arduous stages of setting up a business, recession makes growth almost impossible. During times like this, many startups die before they get any investment. In fact, investors are more careful about where they put their money during recession; only few are willing to take big risks.
Times are hard for businesses: big companies, growth companies and also startups. But there are important messages from Wema Bank that should help everyone through this time of recession.
Opportunities at your door
Don’t look too far. Don’t chase too many big deals. What you are looking for may be right at your doorstep. If look well enough, you would see that there are opportunities you can exploit. If you did not know, some small businesses are recession-proof and they survive recession after recession. For example, bakery operators will always enjoy demand for their products, even when prices rise. The Lagos State Association of Master Bakers and Caterers of Nigeria has increased the price of bread by 20 percent, but many families in Lagos, Nigeria’s commercial capital will still eat bread as breakfast tomorrow. However, you should think beyond bread; there are several opportunities outside the bakery.
Cash is king
Are you a new entrepreneur or a seasoned business owner, please remember that you need cash more than ever before. There is no doubt that uncertainty of the economy is high; it is therefore, wise to keep enough cash on hand to cover at least 30 days of monthly expenses. Of course, you know that cash on hand means funds that are immediately available to a business, as opposed to assets that must be sold to generate cash. Usually such funds are kept in Wema Bank where you can access them any time from the various available channels.
The amount of cash on hand determines what financial hardships can be absorbed without going into debt or arranging other financing. You sure do not want to accumulate debt during this period.
Rejoice! Your competitors will fail
That seemed rather harsh, but it is the truth; a lot of your competitors will close shop one after the other over the coming months. Pity them and move on; grab the opportunity to attract new customers. This is an excellent time for you to expand and take advantage of a larger market share. Don’t sleep on it. Do it now!
However, be careful not to be caught up in the euphoria of your new found status as a ‘market leader’. Every business owner (especially small businesses) should continue to run his or her business with caution and absolute prudence. There will be more tough times ahead.
Don’t stop shouting
The good news is that recessions do not last forever. Once the current recession ends (some analysts predict December 2016), every survivor has a good chance of emerging stronger. Usually, survivors of recession become the market leaders during the recovery, but these are the ones who never stopped shouting. Whatever you do, don’t cut advertising. Studies by McGraw-Hill Research show that, companies that continue to advertise come out ahead after a recession. Keep telling people what you do and how well you are managing your business to remain profitable despite recession.
For startups, this is the time to be strong. Negative data keep flying around in droves but you cannot be discouraged now. What you need to do is to act! Ask for advice from people who have led businesses through a recession. You will find their experiences very valuable.