The European inflation does not indicate a winter lull, as it remains elevated at 10%. Although it’s an improvement from the previous month, estimates remain bleak. Worse, the European Central Bank (ECB) sticks to its drastic measure with another 50 basis points increment. So economic uncertainties in the region have become more visible and alarming.
With the spectre of another recession hovering over Europe, the SME sector must anticipate more disruptions. Recently, voluntary closures of businesses in the Eurozone have spiked. Indeed, it’s hard to start a new business and navigate a high-inflation landscape. It entails entrepreneurs becoming more practical in hedging risks and bouncing back.
But you can make prudent business decisions in a stormy market environment. You can fortify your business by following these helpful tips.
Improve Employee Retention
It takes a lot of effort and patience to improve employee retention. Although it’s easy to find replacements, starting from scratch can waste time and money. The Great Resignation has been disruptive for businesses across the region. And now, it appears to peak as many employees plan to jump ships. Statistics show that 41% of employees will likely leave their jobs from 4Q 2022 to 1Q 2023.
Even more challenging is the massive labour market transformation. Nearly 70% of employees believe that contracts should be based on results, not work hours. It’s no surprise businesses are switching from nine-to-five to flexible schedules. Doing the bare minimum is also one of the top factors enticing employees to stay. But it may impact productivity, adding more burden to employers.
Today, Europe still faces difficulties in improving its 14% employee engagement. It lags behind North America, Latin America, the Caribbean, EMEA, and Asia Pacific. So to limit employee turnover, you must heed their needs.
The most obvious way is through compensation increments. These include transportation, risk, food allowances, and performance bonuses. That way, you can also negotiate your return-to-office (RTO) memo. Encouraging vaccination, providing shuttles, and creating a vibrant work ambiance is also helpful. Doing all these can make them feel secure and valued.
There are other things you can offer to make them stay. Hearing their opinions, suggestions, concerns, and complaints can go a long way. Non-work-related huddles or dinners can strengthen your bond with them.
Reassess Your Financial Capacity
You must ensure your finances can sustain your business amidst economic disruptions. Start by checking your historical performance. The operating revenue and operating costs and expenses are the easiest to spot. They can tell how your business varied with market changes. From there, you can decide to adjust your production level.
Also, check your Free Cash Flow to focus on actual cash transactions for better accuracy. Compare it to revenues using the FCF/Sales Ratio. It will hint at your capacity to turn revenues into what matters— cash.
Regarding cash, ask yourself these questions: Will it cover business needs and financial leverage when incurring net losses? What is its percentage relative to the total assets? Compare it to borrowings since interest rate hikes may not slow down anytime soon. You may also need to restructure your borrowings to cope with higher interest rates.
To be more precise, check cash and borrowings relative to EBITDA using the NET/EBITDA ratio. It will help you measure your earning capacity to cover borrowings. The ratio assesses the consistency between viability and near-term sustainability.
Measuring financial capacity is also crucial during booms. It helps you determine whether your business is capable of expanding or not. Failure to do so may lead to overleveraging and overcapacity.
Lastly, it can entice more investment inflows.
Go Online
The pandemic has changed the business landscape in no time. Amidst the restricted operations and limited transactions, entrepreneurs had to adapt. One of the best methods to cope with it is by going online. It’s a timely move as digital transformation speeds up.
With billions of customers and businesses, it’s now easier to transact on the internet. You can apply it to your marketing strategies using social media websites. Going online also helps you expedite business processes, especially your financial reconciliation. You no longer have to worry about manual invoice validation with electronic invoices. Mobile wallets and VCCs allow you to purchase items wherever your supplier is.
There are various apps to help you optimize efficiency. Workflow and project management apps can help in your cost reduction strategies.
Maintain Customer and Investor Ties
Businesses have four stakeholders: owners, investors, employees, and customers. Investor perception and consumer behaviour can influence your goals and directions. A solid customer base means more demand and revenues. Meanwhile, earning the trust of investors means more resources. Therefore, you should get in touch with them as often as possible.
Listen to them, and make sure they know you’re listening. Their feedback can help you improve the quality of your products and services. Qualitative surveys and product validations often come in handy. But a more comprehensive approach is the Quarterly Business Review (QBR). Discuss the added value of your products and services. Identify effective ways to penetrate the market and improve customer engagement. Enhance investor value by increasing income and payouts.
Try To Be Different
Aside from market conditions, the level of competition may affect business success. Your marketing strategies are vital to establishing your positioning and inviting leads. So be more updated on the market changes.
If you’re a newcomer, it’s better to find your passion and skills and shape them. Having extensive knowledge and experience can help you think of lucrative business ideas. Familiarize yourself with all business aspects. Thankfully, there are a lot of reliable people to guide you with the ins and outs of your chosen industry. You can get the best business ideas for your success by visiting this link.
Establishing and managing a business during economic downturns can be risky. Higher costs, lower production, and employee turnover are challenges to overcome. Despite this, you can make your business rise above everything else. Your prudence, patience, and effort will eventually pay off.
