I have mentioned Bob Edwards' suggestion that there be a question of the day on this blog.
This was Bob's opening question:
How can small businesses regain their feet during the present COVID-19 crisis?
Bob's suggested answer was:
I would offer: try marginal pricing.
Turnover is comprised of direct costs, fixed costs and profit(loss). At the very least businesses could exclude the profit element from their prices to make a contribution. A widget sold for £100 (pre-covid19) with a direct cost of £30, fixed costs recovery of £30 and profit of £40, could be sold for £60 and the financial position of the company in the short-term would be unaffected?
Bob's answer is one way of addressing this, and comes from an accoutn9ing perspective., I too am an accountant, but use a different lens.
For me there are three answers to this.
First, business has to make sure that it is not over-ambitious when it restarts: the risk of over-trading is really high.
Second, that means it needs to focus very strongly on what it is that is most likely to be useful, and so desirable, amongst all the things that it does when it begins the recovery from this crisis. The fact is that for some time people's thinking will have changed. As example, this is the classic occasion when few will be buying high ticket items. The couture industry long ago learned that most people could not buy its products. But then they put their labels on lipsticks and they sold them, in large numbers. I'm not encouraging lipstick sales: what I am suggesting is that working out how to meet demand when people will be cautious and so spending carefully is key to recovery.
Third. I'd suggest this is the perfect time to ask big questions about where the business is going. Wherever that is it's almost certainly not where any manager thought it was heading in February.
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I don’t have an answer, but I do have an example. Choice Pet Supplies have kept open for their regular customers, but not for people to browse the shop. People can order online or by phone then collect later. They only supply locally so they can easily do this. Very similar to click and collect from the major supermarkets.
[NB. The owner is an old friend of mine]
For my business the most simple and easiest thing to do would be to reduce
VAT by 50% for six months before restoring the current rate gradually over the next twenty four months
just a thought
I gave no problem with that
Maybe less than half
But it would help….
State backed 100% loans over 5-6 years. Around 2% interest. Targetted towards smaller companies under say £250k turnover.
And crucially give the small companies an incentive. Provide relief against future Corporation Tax for paying it back. ie pay the £250k back and% relief against CT.
The suggestion that businesses should sell at cost is very dangerous for three main reasons. First true cost is very difficult to arrive at, especially when product and service mix change rapidly. Sophisticated companies use activity based systems to overcome this problem. Secondly historic cost influences future negotiations, so businesses will not be able to raise prices. Thirdly high margin businesses survive better than low. Marketing will always insist on concentrating on non-price elements in sales promotion.
The standard approach should be based around Pareto’s Law, focusing on a limited product range to key customers, bolstered by joint planning.
You do realise that the whole of microeconomic theory is built in this premise, don’t you?
And that every business does know this cost?
Challenge that and there is nothing left to market economics, which is true of course…..
We both I think try to work in the real world offering workable solutions . Most of “theory” is just that – as an ex-scientist I only tend to accept repeatable and tested ideas.