Preparing for a downturn without panic

Begin with the number that matters most: how long could you last? Gather your cash in the bank and in hand, and your fixed monthly costs, meaning the ones you must pay even if no order comes in: rent, salaries, loan instalments, utilities, insurance and licences. Divide what you have by those costs for a rough runway in months or weeks. Then do it again with some income assumed. For illustration only, with made-up numbers, suppose fixed costs are two lakh rupees a month and you hold six lakh with no income at all. That is about three months. If sales continue at half their usual level and cover half the costs, the runway stretches considerably longer. Try three cases, where sales fall by twenty, forty and sixty per cent. The point is not to predict. It is to see how much time each case gives you.

Next, sort your costs into three baskets. Essential costs are those without which the business stops or breaks a legal duty. Flexible costs can be reduced, paused or renegotiated for a time, such as advertising, some subscriptions, overtime, travel or part of a lease arrangement. Optional costs could go without customers noticing. For each flexible cost, note how quickly it could be cut and what it would cost to restore. It is much easier to make these decisions calmly now than under pressure later. Cut first what customers will not notice.

Then look at money owed to you. In a slowdown, slow payments are often the first sign and the first danger. List what customers owe, with the age of each amount. Agree payment terms clearly before delivery, send invoices promptly and chase early and politely. If you sell to businesses, remember that rules exist on late payment to small suppliers. Under the Micro, Small and Medium Enterprises Development Act, 2006, a buyer is expected to pay a registered micro or small enterprise by the agreed date, which cannot be more than 45 days from acceptance of the goods or services, and delay attracts interest. The government's MSME Samadhaan portal describes the position and how to file a claim. Rules change, so check the current position with your accountant before relying on them.

Stay close to customers. They are your best early warning. Talk to your largest ones regularly and ask about their own plans, not only about your orders. Keep quality and service steady, because people remember who stayed reliable when things were hard. Watch for demand shifting towards cheaper or smaller versions of what you sell, and consider whether you can offer one. If one customer provides much of your work, think now about what you would do if they cut back.

Speak to suppliers early. If you expect to pay late, tell them before the due date, say when you will pay, and keep that promise. Ask for revised terms before you are in difficulty, not after. Check whether your key suppliers are themselves under strain: late deliveries, changed prices and requests for advance payment are all signs. Review your orders and stock so you are not tying up money in goods you may not sell.

Be honest with your team. People notice when things change, and silence breeds rumour. Explain the situation calmly, say what you are doing and what you do not yet know. Consider options that protect jobs, such as reduced hours or shared reductions, before reducing numbers, and protect the people whose skills would be hard to replace. Employment rules apply to any change in pay, hours or staffing, so check the current requirements and take advice before acting.

Now decide your trigger points. These are the signals at which you will act, agreed in advance so you do not argue with yourself later. For example: sales below an agreed level for two months in a row; runway below a set number of weeks; a major customer paying late or ordering less. Beside each trigger, write one specific action and who will take it. A trigger might say, if sales fall below this level for two months, we pause these three costs and review again in a month.

Protect what will bring you out of the slowdown. It is tempting to cut everything at once, including the things that keep customers and people. Think carefully before cutting product or service quality, a minimum of customer contact and marketing, your best people, and your relationships with suppliers and any lenders. If you have loans, speak to your lender early if you expect difficulty. Lenders generally prefer an early conversation. Check the terms of your own loans and take your accountant's advice, and do not assume that any particular scheme or relief will be available.

Finally, look for openings. Slow periods can bring customers whose own suppliers have failed, assets at lower prices, and time to fix the processes you were too busy to improve. Use some of the quiet weeks to write down key processes and fix recurring problems.

To start this week, do three things. Work out your runway on three sales cases. Sort your costs into the three baskets. Write down two trigger points and the action for each. That is a few hours of work, and it means that if the slowdown comes, you begin with a plan rather than with worry.