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How can Singapore Businesses Keep Their Heads Above Water in a Recession
As Singaporeans, we are perhaps more fortunate than some others in these trying times. From the perspective of a public health crisis, Singapore can be said to have handled the Covid-19 outbreak commendably, albeit with a few hiccups along the way. Of course, the entire world continues to be vulnerable to the spread of the virus - and indeed the number of cases across the globe continues to rise - but at least our infection rates look to be well within control, and our healthcare system has an outstanding record in treating coronavirus patients. The news of various vaccines having been developed is also hugely encouraging. The problem that continues to have far-reaching repercussions is the economic fallout. According to an IMF statement, the world has plunged into the worst economic recession since the Great Depression, and the outlook for global recovery looks to be slow and uneven well into 2021. Meanwhile, the Singapore economy shrank by 13.3 per cent in the second quarter from the same period last year, which is the worst quarterly performance in Singapore’s history. Our third quarter GDP has admittedly improved but as a whole our economy continues to contract. This economic downturn is not going away anytime soon. As such, businesses must brace for a prolonged recession. Here, we explore some ways through which Singapore businesses can weather through this extended storm. Manage better cash flow A positive cash flow is integral to a company’s survival. This becomes much more pronounced in times of economic hardships, especially for small businesses, where it might be prudent to prioritise liquidity even over profit margins. Positive cash flow indicates that a company's liquid assets are increasing. This enables it to have a cash reserve that can be used to settle debts, reinvest in its business, pay expenses, and provide a buffer against future financial challenges. Logic dictates there are only two ways, broadly speaking, to improve cash flow: increase the amount of money coming in (actual cash, not hard assets or money tied up in accounts receivable) or decrease the amount of money going out. Some simple suggestions to achieve the former include managing invoicing and collections better, while the latter largely involves eliminating unnecessary expenses and perhaps securing credit from suppliers. We have some excellent tips that can help businesses to manage their cash flow, which is well worth checking out.But perhaps the most direct way to inject more cash into a business is to take a loan. Feel free to contact us if you require any help with applying for a business loan. Other options for liquidity include alternative finance solutions like asset financing, or offering equity in the company to private investors.
Make the most use of government assistance It can be easy to forget that Singapore actually held parliamentary elections in 2020, amidst the coronavirus pandemic. Despite that (and the fact that the incumbent party actually lost more seats to the opposition than it ever had), the government still reacted swiftly and decisively to help Singaporeans, on both the consumer and business fronts, during these difficult times. By May 2020, four stimulus packages had been announced – the Unity, Resilience, Solidarity, and Fortitude Budgets – totalling nearly S$100 billion in support measures. For businesses, the Covid-19 support measures that are made available through these stimulus packages include corporate income tax rebates, property tax rebates, wage support through the Jobs Support Scheme, foreign worker levy waivers, hiring support through the Jobs Growth Incentive programme, and many more. Full details on all Covid-19 support measures for businesses can be found here. A series of grants, particularly for SMEs, are also available to help companies grow and thrive in a post-coronavirus economy. Many of these grants are focused on the adoption of digital solutions. These include: - Enterprise Development Grant (EDG), which helps to offset qualifying costs for projects that help businesses grow and transform through adoption of technology and innovative processes. - Productivity Solutions Grant (PSG), which supports companies in the adoption of pre-scoped IT solutions and equipment that enhances productivity and business processes. - Market Readiness Assistance (MRA) Grant, which supports SMEs to help their business expand overseas. - Digital Resilience Bonus, which disburses funds to companies in the Retail Sales and Food Services sectors for adopting the PayNow digital payment system, e-invoicing, as well as digital business solutions in areas such as Business Processes, Digital Presence, as well as Data Mining and Analytics. The government also launched the Temporary Bridging Loan and Enhanced Working Capital Loan Programmes, which provides business financing support to SMEs in all sectors. This is to allow them access to working capital to tide over this crisis. Smart-towkay.com is also able to help with the application of these loans. We go into more detail over the various grants and loan support from the government here. Focus on core competencies Risking time and money on product or service diversification during an economic recession is not advisable. This is especially true for smaller businesses. Efficiency is key, and risk-taking should be kept at a minimum.
Instead, focus on what the company does best – i.e., what is most profitable for the company – and work to make it a strong stable foundation upon which to grow the business in the long term when better times finally come along. Taking the opportunity to perfect the company’s core product is often the best way to make one’s business recession-proof.
Having said that, businesses which are already diversified in their products and service offerings, or business geographics, are much more likely to survive during lean times. As such, this is a valid strategy to adopt post-recession, just not when a business is in survival mode.
Don’t neglect marketing
As a popular saying goes, “When times are good you should advertise. When times are bad you must advertise.”
Minimising costs during an economic downturn is a priority, but so is marketing. In times of hardship, consumers are more likely to change their buying habits and decisions. Especially if a company’s product is value for money, now could be the best time to make its brand more visible.
This has held true since a century ago. In the late-1920s, Kellogg and Post were the market leaders in the American cereal industry. When the Great Depression hit, Post cut back its marketing budget significantly in order to limit expenses. By contrast, Kellogg doubled its advertising spend, focusing especially on radio advertising and pushing their new cereal, Rice Krispies. Kellogg’s profits grew by 30 per cent despite the tumultuous times (The Great Depression was followed by World War II) and they grew to become the industry’s most dominant player, a position they still hold today.
Some options to improve marketing efforts include reaching out to past prospects to re-establish a connection, or looking to collaborate with bigger brands in order to reach larger audiences.
However, digitalisation is key here, not least because the pandemic has forced reduced face-to-face contact, thus accelerating the speed with which everything is being transferred online. Even established brick and mortar shops must transition at least partially to e-commerce, and digital marketing is swiftly becoming the most dominant form of advertising.
Digital marketing options include embarking on email campaigns both to generate sales and increase brand awareness, placing targeted ads online, and posting consistently on social media.
As mentioned, the Singapore government is also keen to facilitate companies to adopt digital tools. The grants and subsidies mentioned above include some that may be used specifically for digital marketing, such as the SkillsFuture Enterprise Credit (SFEC), which can be used by SMEs to send their employees on digital marketing training courses.
For newly incorporated SMEs that just started their business or are new to digital technology, the Start Digital Pack is another viable option. This is part of the SMEs Go Digital programme to help SMEs use digital technologies and build stronger digital capabilities. Out of 5 categories, one of which is Digital Marketing, an SME can pick 2 to adopt at no cost for at least 6 months. More information can be found here.
Client retention is paramount
While losing customers is never good for business, doing so whilst facing an economic crisis is particularly perilous. Typically, the probability of selling to an existing customer is 60-70 per cent. The probability of selling to a new prospect is 5-20 per cent. An existing client simply offers a better return on investment.
As such it can be more important to retain current customers than to incur the cost of finding new ones. As pointed out earlier, consumers are more likely to change their spending habits during tough times, so from a company’s point of view, preventing loyal customers from jumping ship should be most pertinent.
The key here is to focus on delivering exceptional customer service. A customer base that feels its needs are identified, and that the company is going the extra mile to meet those needs, will indubitably produce the most loyal customers. These are then the ones that a business owner can target for recurrent sales. An established customer base forms the basis of a recession-proof business.
Some suggestions to improve upon this include offering loyalty incentives, and conducting after-sales service to evaluate if the client base is being adequately served.
Read also: New Opportunities for E-Commerce Businesses To Grow During This Pandemic-------------------------------------------------------------------------------------------------------
Read also: Corporate Income Tax Filing Season 2020: 6 Things SMEs Need To Know
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