1. Get a grip on inflation
Recent research from the Federation for Small Businesses (FSB) suggests that inflation remains the number-one headache for small and medium-size enterprises (SMEs), with soaring energy costs the main cause. An FSB spokesman says: “Profit margins are reducing, and now thanks to inflation many businesses are spending more on overheads and every day running expenses to continue trading, as the cost of doing business rises in line with the cost of living. You need to find alternative ways to balance profit margins, so you don’t end up relying on raising prices over the level of inflation to make a profit.”
Passing on some direct input cost increases to your customer and clients is likely to be necessary for a number of SME owners, but this might be an opportune moment to review the overall pricing strategy of your business (Pricing strategies in period of inflation).
The organisation recommends investing in new technology where possible to streamline processes and making them less expensive to run, as well as carrying out an energy audit to help identify wastage. The spokesman adds: “To face rising costs head on, seeking alternative finance to help fund gaps in working capital, or to provide some financial stability, is by far the most effective option.”
2. Learn from the past to boost sales
Paul Owen, boss of marketing consultant Sales Talent, says that earlier downturns can provide insight into how to deal with the current slump. “There is plenty we can learn from the credit crunch and from previous recessions when it comes to operating a business in a tough economic climate,” he explains. “The way companies manage their sales and marketing teams, for example, can have a huge impact on how they weather the financial storm.”
With the Capify Q3 Business Confidence Survey revealing that 46% of SMEs were currently trading behind their targets, Owen recommends switching to “market share, not targets” when it comes to sales. “Teams that are focused on getting new eyeballs on their brand can be inspired to innovate and create,” he says. “Those feeling beaten down trying to achieve unrealistic, pre-recession targets, however, are unlikely to perform at their best. And now is
the ideal time for firms to revisit their lead-generation and conversion strategies. Are opportunities being missed when it comes to finding new business? Is everything possible being done to convert new leads into paying customers? Any work that can improve this process will pay dividends both during a recession and after.”
3. Keep an eye on supply
With costs rising and shortages still being felt across the economy, small firms need to make sure they know exactly what’s happening in their own supply chains, says Kirsty Braines, chief operating officer at business transformation specialist Oliver Wight. “It can be useful to develop extended supply-chain assumptions to project how incremental costs may be passed downstream onto clients and consumers,” she explains. “Ensure you include inflation and currency assumptions in your short-term projections and review them on a monthly basis so long as disruptive business conditions continue.”
Braines adds that companies should investigate shortening their supply chains and potentially moving away from a reliance on imports given their vulnerability to currency fluctuations.
On the flip side, the relative weakness of the pound may provide an opportunity to consider new export markets for your business (Exporting tips for SMEs)
4. Get ready to take opportunities
Businesses should not be in pure fire-fighting mode, says Rick Smith, managing director at consultant Forbes Burton. “Despite the pressures, there are many opportunities that may emerge: for example, there will be a lot of businesses that don’t survive because they aren’t prepared so there will likely be opportunities for those willing to take some risk and fill the gaps where others fall.”
With this in mind there may even be opportunity for mergers and acquisitions within your direct competitive set.
Smith adds that resilience is borne from a disciplined and regular approach to key financial information: “To see themselves through, firms need to make sure they are forecasting cash flows, keeping an eye on expenses and planning scenarios with actionable milestones. There needs to be trigger points for actions identified and then kept to.” Smith says that firms should ensure they continue their marketing activity throughout the downturn. “Many businesses look to slash their marketing budget as soon as costs get tight, but research has shown that the companies that keep marketing emerge stronger after a recession or downturn – usually ahead of their competitors.”
It is highly likely that trading conditions will get worse before they get better for UK SMEs in 2023. However, being aware of the challenges ahead will help businesses be as prepared as they can be for dealing with them.
At Capify we offer a range of business loans to help support your business through high and low periods. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.