Business Strategies During the UK Economic Recovery

Clearly, there have recently been dramatic changes in National, International & Global Geo-Politics & Economies, and so patience and endurance are the key qualities to get through the severe economic and harsh financial pressures currently around.

There is also substantial economic & financial evidence indicating that there are and will be some great opportunities opening up to businesses generally.

The prospects will no doubt in time become more positive and small businesses are best placed to recognise those opportunities and establish growth finance over the next period, and with the right presentation, access to finance in the UK will become easier.

For some businesses, the economic climate has severely challenged their very survival, whilst for others the dramatic downturn naturally offers a rare but distinctive chance to take a lead over the competition in the current gradual, fragile but undoubted recovery in the economic cycle.

Basic Business Principles

  • Listen carefully to your customers
  • Make decisions based on fact, not emotion
  • Have the courage to go for it
  • Get professional advice
  • Don’t compromise on the quality of people you employ, because negative employees are bad news. Positivity builds, negativity kills
  • Never see bookkeeping and accounting as the least important aspects of your business

Political Landscape

The harsh realities from current severe economic situations mean that these major consequences require the UK government to manage the UK’s finances, which to say the least is now extremely challenging and deeply affects its ability to reset the UK economy when traumatic global issues exist.

Economic Recovery

It is vital to pull in commercial straps, and avoid risk wherever possible since interest rates and inflation are not yet fully recovered, and public spending is destined to cause ripples in the UK economy. Growth is the goal, but with business costs rising, there will be a period of heavy financial pressure until the undoubted solid economic recovery truly takes hold.

Strong Systems

Whatever these external influences, it is imperative to concentrate on establishing inner company or business strength, and then maintaining a robust platform for the future. Key performance data from strong systems will assist in indicating how well you are performing, and it does take a strong determination to achieve success from hard work.

Accounting Transparency

With the above in mind, the need for effective opportunistic risk has never been more evident. At the same time, there is a growing demand from customers, shareholders and other interested parties e.g. banks, for accounting transparency and clear evidence of strong management.

Performance

Better performing companies will certainly be looking at ways in which they can strengthen their position, and emerge from the current downturn in the coming months, a far stronger enterprise, and better-placed to embrace the future.

Take Stock of Your Situation

  • In today’s highly networked global economy, it is simply not enough just to take on board what the effect of the recent downturn will be on orders for your own products and services or how long it will take to recover.
  • It is equally important to gauge what is happening to your customers and suppliers.
  • A complete 360 degree assessment of risk in your business provides the starting point for setting out your strategy. Structure your plan, your response accordingly.

Survival Strategies

DEBT

Many businesses have previously been encouraged to take on higher levels of debt, and now is the time need to pare this down by reducing and restructuring debt.

Dividends

Some companies will need to preserve cash resources, so it is very advisable to consider reducing or cancelling dividend payments.

The Domino Effect

A very important factor is the fact that many businesses are suffering as a result of regular customers unexpectedly going out of business. Failing to understand a customer’s financial position has proved costly to a large swathe of small and medium sized businesses (according to a recent study by Experian). Simply checking your customers’ credit rating once a year is certainly not enough to identify potential problems. The rate of ‘deterioration’ is far quicker in today’s trading climate, so the sooner the signs of financial stress are detected, the sooner it is possible for a business to react. The true cost is the domino effect, in which the small and medium sized companies ‘go down’ along with the failed purchaser.

Say NO

SMEs typically have a heavy dependency on a relatively small number of clients, so it is very worthwhile to consider trade insurance on debtors, or ensuring that balance sheet reserves are built up to withstand such shocks so far as it possible to do so, bearing in mind it is always difficult (virtually impossible) for business owners to say ‘no’ to taking orders from all quarters. Sometimes saying ‘no’ on the odd occasion might well be a saving grace.

When To Panic!

Selling non-essential fixed or current assets is a good method of raising ‘dead’ cash, whatever its realisable value. Although asset realisation is not a particularly appealing prospect in the current environment, the reality is that prices for ‘second-hand’ assets could go much lower. As has been said: “Don’t panic! But if you do panic, panic early!”

Cost Reduction

Subtle or tactical cost reduction will include eliminating or curbing discretionary spending, renegotiating where possible purchasing contracts, and reducing exposure to poor payers through efficient or even tougher debtor control.

Overheads

Review again and again business overheads taking advantage of discounts, sales and lower prices and new opportunities which appear in the recovering market.

Retirement

Some companies may urgently need to review policies on defined benefit pension schemes, or even extend retirement ages. Soon there will be a structural change to the contractual retirement age in favour a compulsory raising of the retirement age, and even the dispensing of the pre-arranged company retirement date.

Repositioning Strategies

  • It is time to streamline and simplify. Everyone, employees and traders alike, are expecting change, and business entities should use this opportunity to adjust their businesses accordingly.
  • So far as you can, eliminate duplication, move activities to the most commercially advantageous location, exploit economies of scale, and upgrade your performance management systems.
  • For more ambitious entrepreneurs, it may well be the opportune time to consider strategic corporate tax planning to take advantage of future tax consequences but at today’s values, involving family tax planning for inheritance tax purposes.
  • This is a golden opportunity to access new skills and reshape or resize your workforce.
  • It is also time to invest in innovation and undertake research & development, as it makes absolute sense to invest now in understanding how purchasing patterns are likely to change and what new developments are emerging.
  • Acting and reacting early to these opportunities and anticipating these service needs, can help to establish stronger customer loyalty and provide a more sound base for future growth.

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CASH

For those with excess cash or access to development financing, an economic downturn offers opportunities to acquire new tangible assets or production or service capabilities at unbelievably attractive prices.

EARLY MOVERS

There is always the argument for waiting until such asset values fall further, but the best assets are likely to become available to the market early, and yet tend to be snapped up early.

CREDIT & DEBT

Debt re-scheduling to reduce overall interest rate costs to the business not only reduces secured debt in the business, but can have a very positive effect on the way in which credit rating agencies review the credit worthiness of the business.

BE PROGRESSIVE

Be progressive, and upgrade your human capital. The profound reality for the economies of the western world markets is that there will be a growing shortage of critical business talent and professional advice.

DESIRABLE WORKFORCE

Many, many companies have been laying-off staff, so this is another rare opportunity to access highly desirable skills and reshape your workforce to suit your future business needs.

GO GREEN

Given that environmental considerations will certainly not remain prime economic concerns, moving to more sustainable or ‘greener’ business practices, will however offer opportunities in this climate to substantially reduce costs, manage risk, and increase the overall appeal to the growing market of socially aware, and environmentally concerned customers.

Growth Strategies

The underlying trends that have been driving consolidation across a range of industries have not gone away.
Perceived benefits of scale, broader geographic reach, and access to scarce resources, will continue to make acquisitions an attractive source of future growth.
Access to debt in order to fund such expansion is an ongoing problem for private equity firms and companies with weaker balance sheets, which naturally reduces the ability and capacity to attract assets, and possibly lose the position to the competition.
Despite massive governmental and business-led pressure, the banks have continued to ‘cherry-pick’ quality lending, and the access to credit has been somewhat restricted. The banks do ‘en masse’ prefer to lend against hard security and are making remarkable vast profits in the current trading rounds on the back of long term debt banking facilities, rather than short term overdraft funding. However, the discerning borrower with an excellent presentation can definitely obtain bank credit facilities to bolster the expected continued recovery.
The most financially secure companies are already using this serious downturn to consolidate their strong position through subtle asset purchasing & substantial acquisitions at very attractive prices.