Effective cost management for SMEs to survive the Coronavirus crisis

The negative impact of the Coronavirus crisis to the Kenyan economy and SMEs to be specific is undeniable that has seen various stakeholders offer a variety of interventions including but not limited to financial institutions, telecommunication companies and central bank among others.

The government of Kenya just like other countries is in the process of developing an optimal stimulus package for private sector players including SMES who are the engine of the economy.

The negative impact of the coronavirus to SMEs in various sectors has been swift and has necessitated a cost cutting knee jerk reaction from SMEs especially in the tourism sector which has been first on the chopping block.

Cognizant of the coronavirus crisis and the urgent need to take action that ensures SMEs remain a going concern; SMEs must ensure cost management is done in the most humane manner to ensure that it captures value and builds a much stronger brand post the crisis.

The first step that may seems to go against the grain but invaluable would be to involve employees in crafting an optimal strategy. It goes against the grain because most of the time retrenching staff is the default cost reduction for most business yet it’s the same employees that offer the business its competitive advantage and create most value.

Retrenching employees has the potential backlash of automatically loosing your competitive advantage and ability to generate revenue during and post the crisis which would be detrimental to the survival of the business in the long run.

Involving employees doesn’t have to be chaotic but must be structured by offering minimum decision guidelines such as prioritizing options that are; least capital intensive, least risky, proven to have positive cashflow, going to save jobs among others.

This approach will show empathy and solidarity with employees as well as get buy in for whatever final approach or strategy taken.

The business must immediately conduct a full audit of its cost structure and compare each cost line with the value created to the business. The business must then ensure it eliminates or reduces costs that add the least value towards revenue generation.  For example, an SME that offers business support services can retain its employees who can work double shifts and move to a cheaper office and reduce its second largest fixed overhead.

Similarly, apart from cost management, many SMEs will be forced to review their current business models due to coronavirus crisis led restriction of movement and other measures. This will require SMEs to invest in new capabilities in order for them to be revenue positive and ensure they survive post coronavirus. An SME in the restaurant business or retail for example will require to either build internal capacity to attract customers online as well as deliver goods or outsource to specialized vendors such as Glovo and Sendy for delivery and jumia for ecommerce support.

Going through a business downturn is hard as it requires hard decisions to be made despite uncertainty but also presents an opportunity to capture value both internally with your employees as well as externally with current and new customers due to adoption of new business model.