Saving life and Saving Economy.
At this hour, every business organization needs to follow four Mantras:
1-Leadership
2-Values and ethics
3-Motivated team
4-Robust and strategic business plan
Strong leadership is very important, at this time of the crisis. We need to be positive and bring positivity to our organization. Also at this moment, we need to be very careful, concerning our values and ethics. Losing values and ethics, at this time, can be harmful in the medium and long-term, even though they may be looking good, in the short run. We may have, men /machine/ and material, but to manage all these three, we need to have a motivated team.
A robust and strategic business plan comprises the following:
- Maximize sales
- Maintain liquidity
- Cost reduction
- Defer capital expenditure which would not generate, any extra sales
- Lobby and take advantages of the government financial package
- Look innovative ways, of doing business after the lock-down.
How to Maximize Sales?
Look for diversification, look for new territories, look at new areas, and look for new products, in your field of business. Many of your competitors may fail, and we should capitalize on those opportunities. Make business cartels within the parameters of the law of the country, which would help you to maintain your selling price. Hedge your selling price, as against the exchange devaluation.
Maintain Liquidity
At this time, maintaining liquidity is also very important. Reduce your stock levels as much as possible. Give a special focus on your debt recovery plan. Negotiate with banks to restructure your EMI’s, if needed, as per the guidelines of the central bank. It will not affect your credit rating. Defer your statutory payments if your government has allowed it.
Government Intervention
Lobby and take advantage of the various government packages. If you are not a member of any business association of your country, then take the membership.
Cost Reduction
(a) Employment Cost
Among the various heads of the indirect cost, employment cost is the highest. Reduction in the staff cost can be achieved in many ways,
- By retrenching staff,
- By reducing the salaries and perks
- The combination of both.
Especially, when we are retrenching, local staff, we need to be very careful, that we are following, the law of the land. The Ministry of Labor might have issued some guidelines and clarification, in this regard, but see carefully if any relaxation is given. Maybe not.
It should be well noted and understood. While retrenching the staff, the following elements of the employment act should be kept in mind namely— notice pay, severance allowance, pending leave, and any terms and conditions of the employment contract, which have been committed by the company.
If companies will not take care of these provisions, of the employment act, then we may end up in the court. Also, be careful, as what we give in writing, to the staff, at the time of retrenching, because if not taken care of this, then it can create a legal issue for the organization. Staff cost can also be reduced by adjusting, their annual leave, with this lock-down days.
Reimbursement of some expenses like transport cost, training cost, telephone cost, lunch expenses, can also be deducted for this, lock-down period salary. Staff can also be sent, on long leave without pay, but this needs to be done, with the consent of staff. If the organization is Paying overtime to workers, try to find a way that can be saved without affecting the production. Companies can also think, for some of the staff, who can work from home and, thus save cost.
Some of the expatriate staff can be sent for long leave. Alternatively, some of them can work, from their country, and you may pay them, much less salary for that period.
Improve the efficiency of your workers and your staff, with creative thinking. Renegotiating the terms of employment, with the consent of the staff should also be explored.
One has to be very careful; that staff on duty, in any organization, are kept motivated. Working with the de-motivated staff would give hidden losses to the organization, which, we will never realize it.
(b) Force major clause in various contracts
Applicability of the force major clause, in various contracts, needs to be studied by each company, as to how you can invoke or how others can invoke against you in this situation. This can increase your cost or decrease your cost.
(c) Electricity cost
Run your factory in the night instead of the day and use the off-peak electricity rates.
(d) Imported raw material
Imported raw material prices can be negotiated in your favor. As supply will be more than demand.
(e) Marketing budget
A marketing budget can be curtailed while keeping a close watch on your competitor policy.
(f) Other expenses
Traveling is going to be very costly as airfares will be high, so minimize air travel – Control wasteful expenses like production wastage, repair, and maintenance ( focus on preventative maintenance )
COVID policy or Pandemic policy
Draft a Pandemic policy for your organization. This will help you in many litigation and remove the ambiguity in the employment act, like you can define severance allowance in your policy.
In the end, I will only say, that during this lock-down period, develop a cost reduction plan, to save your company, from any cash losses.