According to the bank of England’s predictions the UK could shrink in the final three months of 2022 and into 2023 triggering the longest recession since the 2008 financial crisis(1).
The downbeat forecasts combined with the steep rise of inflation over the last year will fill some SME business owners and managers with dread, but there are ways to mitigate the economic impact on your business. At Team SAS we’ve prepared a list of actions for SME owners and management teams to consider when preparing for challenging economic times ahead.
We believe in empowering our clients and encourage them to focus on what is within their control to support their businesses. In a recession it will be particularly important for SMEs to be agile and react quickly to the rapidly changing conditions.
Scenario planning: look at the internal KPIs and financial metrics and ask whether you can already spot any trends in the data/information you have to hand. Ask the question, what actions could the Management team take if this trend of xyz continues?
Start discussing recession plans with key stakeholders as early as possible. In talking to key suppliers/ customers/ partners about what their plans are, you can begin to understand the potential impact the recession will have on their business and yours. This may highlight the higher risk partners, so you can create a ‘backup’ plan to re-negotiate/ seek alternative suppliers for the business to continue trading with minimised impact.
Outsourcing and premises: consider outsourcing to cut costs. This way you can reduce overhead costs and think carefully about the space you use (e.g. office space or warehouses being used more efficiently). For example, consider lowering your stock levels; but this is only likely to be feasible if your supply chain is made more efficient and allows you to hold less stock.
Review costs: try to identify what factors you cannot change (e.g. the cost of fuel) and the factors you can change (internal processes and suppliers that you can switch from), and focus your efforts on the latter.
Ask the question ‘Can we change anything internally (i.e. how we run the business) or do we need to pass this cost onto the customer?’. If you do need to pass costs on to customers, you might need to think carefully how to communicate that price rise to customers, especially in a B2B environment. B2C would be a bit different, as you can observe how competitors price their products.
If you are not already doing so, a cashflow forecast will help in this situation. and give you a view of the cash in your business in the short to medium term.
The above tips are only three suggestions in a range of measures to consider, some of which we’ve already covered in other blog posts. For example, improving your creditor and debtor days in your business. Speak to your finance department about these measures and read our online posts on how to action. If you need any more support get in touch to discuss.
Cashflow monitoring template https://teamsas.co.uk/cash-is-king-cashflow-forecast-template/
How can I improve my management information https://teamsas.co.uk/improve-management-information/
Improve creditor days https://teamsas.co.uk/improvecreditordays/
Improve debtor days https://teamsas.co.uk/resource/easy-steps-to-improve-your-debtor-days/
Outsourcing your financial services can feel like a big decision but may help you make better decisions and more profits for your business. If you would like to discuss our services as your outsourced accounting firm get in touch. To see what our clients think check out our Google reviews.