Whether it’s dealing with the pandemic, energy costs or the impact of Brexit, the future for UK business is anything but clear. Over the next two months, business guru Piers Linney will provide a number of helpful tips on how best to try and solve this complex conundrum.
Unemployment is lower than expected, but this may change once the furlough scheme ends in a few days’ time. The full impact of Brexit is yet to be felt, as businesses adjust to the new rules, as well as the costs and benefits. From my own hiring experience and talking to small business owners, securing talent is becoming a challenge. Recovery, as always, will be powered by small businesses and entrepreneurs, given that they account for 60% of private sector employment and around 50% of GDP. Many small business owners, and especially sole traders, slipped through the cracks of the various Covid-19 support schemes.
Even when the pandemic is finally under-control, these complex dynamics will mean that the outlook is still uncertain. All businesses hate uncertainty, but we all need to be prepared for it, even if your business has experienced growth because of the pandemic. Of course, recessions, economic uncertainty and even the acceleration of technology adoption can offer opportunities for growth too.
In my next two articles, the first this month, followed by my October post, I will offer a handful of practical tips on how best to help your business survive, and hopefully thrive, during a recession. I hope these tips will assist you to maximise the potential of your business ‘ regardless of size ‘ and reduce risk during this period of economic uncertainty. But whatever you choose, doing nothing is not an option. Action needs to be taken and you need to do it sooner rather than later.
Planning and focus:
Not having a plan is always a bad plan. Whatever your plan was pre-Covid, it will probably need to change. Review the market. What will be the impact of a recession on your potential customers, or on your product or service? How will a prolonged pandemic due to Winter or new variants impact your business? Make a plan and share it with your team, as well as all of your stakeholders. Ensure everyone is reading from the same page and you will find that this process will provide insight into who isn’t pulling in the same direction.
Should you need to reduce your headcount, this will help you decide who to keep and who to part company with. I will cover this difficult topic, of undertaking a head-count review, in greater detail next month. Having a plan and knowing your collective objective will make decision-making far more effective and will reduce risk. If an option doesn’t move you towards that goal, then don’t do it. This is not the time for chasing shiny objects or being distracted. Focus your finite resources on your core competencies, and where you can add the most value for your customers to maximise your income.
Reduce cash flows:
Cash is king and managing it is the key to surviving economic uncertainty. Running out of cash, when credit or external investment is hard to secure, can be fatal, regardless of your business’s potential. It can take time, resource and protracted negotiations to reduce or slow down the pace of your cash outflows. There is fat in all businesses and now is the time to trim it and review every individual cost. This covers rent, software subscriptions, even paper clips. Can you remove the cost, or reduce it, without impacting the efficiency of your operation? Review your inventory and minimise it.
As well as reducing cost, slow down your outflows of cash. I am not suggesting that you pay late, but look at ways of renegotiating current agreements. You may even need to switch to suppliers who offer improved terms. Don’t forget that your suppliers will be facing these same issues. These conversations may be difficult, but you still need to have them, and as early as possible. Review raw material choices and costs. Where possible, turn a fixed cost into a variable one ‘ such as ‘rent’ instead of ‘owning’. If appropriate, use short-term contractors for a period of time instead of hiring permanent staff. Make your business leaner and more flexible because it is these fixed costs that take businesses down.
Increase cash inflows:
This is the other side of the coin. Ensure that your cash collection is on point: Whether that’s a credit control function or just the online payment system you use. How long do they hold onto your revenue? Rein in your credit terms and manage collections carefully. You should only be offering favourable terms to your best customers. Can you incentivise customers to pay upfront, or faster, without giving away too much margin? Can you improve your margin by reducing your cost of sale? Combining this with the slowing down of cash outflows, will maximise your cash availability and reduce risk. Although all businesses should be doing the same, many will suffer as a result of not micro-managing cash flow.
Downsize once:
It is always a painful process to downsize a business and reduce the size of the team. It can be soul destroying for everyone in a small business, but it is often unavoidable. And even at the end of the process, there is always the lingering uncertainty about future job security within the company. Even your best people may start looking for a new job. This can create even more costly and time-consuming disruption. It also involves the risk of hiring new people ‘ who are yet to prove their worth to the team ‘ at a difficult time for the business.
So, when possible, downsize only once, even if you cut deeper than initially planned. My experience, following downsizing, is that the wheels you expect to fall off stay where they are. You and the team automatically make adjustments to take up the slack. Also, when it comes to downsizing, you have to take the lead and share much of the pain too. Sell the flash car just to prove to staff that ‘we are all in this together‘. It is amazing how many business owners or CEOs fail to do this. This is an important gesture to make.
Manage your customer experience:
When business is brisk, you can sometimes cut corners ‘ albeit temporarily ‘ regarding customer experience. Yet this is rarely to be recommended. In short, companies that provide good customer experiences tend to weather recessionary storms better than those that let it slide. Clever marketing will not overcome a poor customer experience, whether physical or virtual. The legendary investor Warren Buffett once remarked: You only find out who is swimming naked when the tide goes out. You always want customers to engage with your brand and be able to seamlessly consume your product or service. They also need to easily access support when required. You want customers to recommend your business to all and sundry, as this is the ultimate form of marketing. It’s especially important when the marketing budget is tight.
Don’t forget to click into Piers again next month, when he offers more important tips on how to cope with business uncertainty.
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