We shall overcome…rather than be overcome by the double dip-recession if we follow certain housekeeping rules according to the Forum of Private Business.
So, with Britain’s double-dip recession official, how do you adjust to working in this environment when you have once already had to slough through mounting late payments, stagnation in bank lending, rising costs and slowing trade?
The Forum of Private Business has consistently lobbied the Government to improve trading conditions for small businesses, culminating in its headline ‘Get Britain Trading Campaign’. As part of the campaign, the FPB has been actively raising awareness of the problems small businesses face in accessing finance, tackling late payment, negotiating an uncompetitive and complicated tax system, dealing with excessive red tape, recruiting workers with the skills they need and accessing growth opportunities.
Now that another recession is here, these challenges could become significantly more difficult to overcome. However, all is not lost. There is much those of you running small businesses can do to survive and even prosper during the difficult months ahead. The top tips below is an ‘essential housekeeping’ guide to good practice during this secondary recession.
Plan for change
Without a proper business plan you cannot react to sudden changes in the market and will struggle to secure affordable finance. It is also vital to have a coherent strategy to attract investors. Lay out what you want to achieve with short, medium-to-long-term goals along with what your business does, the market you are trading in, and pricing, staffing and marketing strategies. Financial projections should be another key element.
The temptation to panic during a recession and target winning as much business with as many companies as possible can be overwhelming. However, the most successful companies are those that consolidate business with existing customers and invest in markets in which they are strongest.
Cut down on price cuts
It is not essential to cut prices to remain competitive. In fact, it might even be counterproductive if customers value reliability and security over cost. Instead, concentrate on increasing value for customers by offering excellent service and delivering quality. This was a strategy that worked for many small businesses during the 1990s recession.
Make yourself attractive
Finance is the lifeblood of any small business, and it is becoming increasingly difficult to attract affordable funding. In the new lending landscape, it is important to make sure you are as proactive as possible in accessing capital. Despite dwindling bank lending, bank loans and overdrafts are still the preferred funding options for small businesses. However, many feel that banks view them as too risky a proposition, without adequate assessment of these risks, and report sky-high lending costs.
There have been several Government initiatives – such as National Loan Guarantee Scheme ‘credit easing’) the Enterprise Finance Guarantee scheme, the Export Enterprise Finance Guarantee for businesses seeking to break access overseas markets, and Community Development Finance Initiatives (CDFIs), which target small traders in deprived communities, but the problem remains.
While banks clearly need to up their game, it is vital that you provide robust and up-to-date financial information to cut down the possibility of rejection.
In recent years we have seen various alternatives to the mainstream banks emerge, including those that do not rely on automated risk systems. Non-mainstream sources of finance include asset finance, invoice finance and factoring, equity investment via business angels, ‘crowdsourced’ funding communities and marketplaces, peer-to-peer lending and grants. Businesses looking to develop new products may also be eligible for Government R&D grants. Some small businesses are even using personal credit cards and family and friends, but if this is not a sustainable solution it is advisable to shop around for financial services.
Tackle the debtors
Late payment is the cross that many British small traders have to bear and currently there is more than £30 billion owed to them in outstanding invoices. However, there are ways you can guard against this and free up vital liquidity to help during the recession. Recent Forum surveys have shown that SMEs that use credit control procedures have fewer problems with late payment. Other ways to minimise the problem include having customers pay by electronic transfer or direct debit to speed up payment and, simply, submitting your invoices properly and on time. Maintaining ongoing business relationships is important, but never be afraid to use debt collection agencies, or charge interest under the Late payment of Commercial Debts (Interest) Act.
Be a tell tale
It is common for many large companies to increase marketing spend during recessions to mitigate the effects by increasing market share as a result. Often, however, marketing is often the first expense to be cut by smaller businesses. Effective marketing can help you consolidate and even gain new customers. The ‘dark arts’ of marketing do not have to be intimidating.
The most important thing is to ensure you carry out market research. Then think about how you will reach your target market. These days online marketing is very cost-effective if done well – don’t just sell using social media, build conversations and relationships. Perhaps create an email newsletter, and there is no excuse not to have an effective website optimised for search engines. Aside from the virtual world networking events are also extremely valuable. It is vital to reassure the market that you are there and ready to do business, no matter what the economy throws at you.
Retain and recruit
Your employees are your most valuable resource and there is nothing more corrosive than fears over job security when economic realities bite. To keep employees happy and motivated it is important to communicate clearly with them. Let them know they are part of your long term plans, discuss career development and training.
It is always a good idea to ensure there are open and frank opportunities for dialogue with management, and asking for regular feedback on how you are performing will be good for your business. Most important of all, make staff aware of your business plan and how they can play a part in achieving your goals.
With business owners often concerned that too few young workers, in particular, have the skills they need to drive their businesses on, it is always prudent to take on new, talented staff when you find them. In recessions large companies make redundancies too, which means there could be more of these individuals in the jobs market. Of course, you must make sure you get the recruitment process right,
Cutting costs is one of the most straightforward ways to free up funds for any small business. Energy use is one of the biggest overheads for SMEs but many fail to keep track of it. Installing a smart meter is an excellent way to breakdown energy usage and will enable you to target areas for savings. Once you have done this, look at how energy is being used in your business. Is office equipment being left on over night? Have you installed energy saving light bulbs? Is your thermostat set too high? Are unused rooms being heated? Do you have adequate insulation? Are you recycling and reducing waste? Are you making savings on raw materials via group buying agencies? Transport costs are also a major source of expenditure for business, so it is advisable to examine how you can reduce them. It is surprising how many savings can be made.
It is very tempting to close ranks and struggle through a recession and take difficult decisions on your own. However, it is always advisable to seek outside help. Many business owners find it difficult to fully understand problems with legal ramifications, such as financial and employment issues, and despite the additional costs, independent advice can actually add value to a company in the long term.
For details on the Forum of Private Business go to www.fpb.org