Article 35 – Preparedness is key to survival

by Tan Thiam Hock

Planning right in good times mean SMEs have less to do if times change

So what do you want to know first? The good news or the bad news?

The bad news? The world’s largest markets are in trouble.
The good news? We are not in trouble yet.
The bad news? Singapore and Malaysia will be in trouble next year.
The good news? Nobody with authority said we will be in trouble, this year or next year.

Nobody likes bad news. So our politicians of both divide spin only the good news. Which is just great. Who needs bad news anyway? So, the US is not healthy. Who cares? Europe going down? Great, we will have cheaper holidays in Europe. China slowing down. So what? Not our problem.

For the sake of our confidence, let us spread only the good news. General Election is just around the next corner or the next. So more goodies coming your way. Our economy is still growing well. All indications positive. Goody good. Looking at the rest of the world in trouble in a detached kind of way, it feels great to be a Malaysian.

So what if, in possibly the most unlikely scenario, there is a slight remote chance of our economy slowing down next year? Just because in this globalised economy, other people’s recessions and depressions might just finally affect us slightly. And what if, God forbid, our economy suddenly reverse into a recession?

Every segment of our economy slows down, our government is broke, no more subsidies of anything. Property sales come to a standstill, speculators stuck with multiple properties with loans they cannot service. Waiters in posh restaurants swatting at flies. And your five credit cards are truly limited by its credit amount. Honestly, are you prepared for that? Is your business recession proof?

Major corporations have economists, risk analyst and corporate strategists on their payrolls to see into the future. To feel good, they pay massive amounts of money to major consultant firms to tell them what they should already know. Well, at least most of these biggies are prepared for any eventualities with Plans A to Z to fall back upon. What can the small entrepreneurs do? How prepared are they to face a major slowdown or worst still, a massive recession?

Firstly, do you have an uneasy feeling in your gut? Since you have no consultants or economist to fall back on, you will have no prior warning. In addition, you have no skill to gaze into a crystal ball to predict the future, let alone afford one. By the time you read what the economist tells you, it is too late. You are already in trouble, big trouble.

So how do you prepare for a slowdown?

The three wise men have only three pieces of advice for you:

  • Follow your gut feel
  • Conserve cash.
  • Be prepared.

Just like in stock markets, when they tell you to buy, you better sell first before them. All the property developers are rushing their developments to sell. If you have been speculating with ownership of multiple properties and you have no holding power, then I suggest you rationalise your portfolio. Do not be greedy. Adopt a survival instinct. You survive first.

Try to read between the fine lines. Behind the glowing reports, there are major cracks not known to your naked eye. If major companies are worried, you better be. If the world economy is in trouble, the troubles will filter down to our economy, sooner or later. Gut feel is just gut feel. An uneasy feeling that you must acknowledge and appreciate.

Then you have to be pragmatic and act accordingly. The trick is to adopt a defensive strategy. As they say, timing is everything. Only problem is you will never know when is the right time. Preparation of your mind to face any eventuality is the first step to a good defensive strategy.

You are labelled a small entrepreneur or an SME because you have a small cash flow. And you only have positive cash flow during the good times. So conserve cash while the going is good because you will need this comfort zone during the bad times. Keep lean during your growth years. You never know how long it will last.

And, cutting fat when you are in trouble reveals the quality of poor management with poor eyesight. Having strong cash pool covers all bad management decisions. Just look at all the major companies in deep trouble now. What have they done right during the good years?

When the economy is in trouble, all businesses will face strong headwinds so be prepared to make tough decisions. What do you need to do to survive? If you have planned right during the good times, you have less to do. But if your gut feel tells you to further rationalise your costs, then be prepared to act fast and just do it.

During bad times, it is better to be a pessimist than an optimist. Lower your forecast accordingly so that you have a better understanding of your current cost structure. Assume that good times will never come.

So, will our economy continue to grow or will we go into a recession next year? Honestly, I have no idea. Do I believe the daily good news or do I follow my gut feel and be prepared for the downturn?

I guess it all depends on whether you want to hear the bad news or the good news first.

Advertisements