Small Business Tips for Tackling the Recession


When will it all be over?!

Or, “Recessionomics, and why it doesn’t matter”

 

If there’s one question on the lips of most small business owners, it is this: when will the recession all be over? Let’s begin with five potential answers:

1) The official answer is, when the country returns to positive GDP. The definition of a recession is a reduction in GDP for two quarters running. And the UK is definitely in this zone: in the second quarter of 2012, UK GDP dipped by an unexpectedly high 0.7% (compared to the city analysts’ expected 0.2%). Now, this may be useful for the policy wonks, but it makes not a jot of difference for small companies. We don’t work in tenths of a percent: either people are coming into our shops and calling up for our services, or they’re not.

2) What about employment figures?  These are looking healthier – and not just because of the Olympic Effect. By July 2012, unemployment had fallen by 46,000, with the headline rate at 8.0% (down from 8.2% in January). But again, small businesses often don’t have employees on tap. If you’re a one-man-band, the employment discussion isn’t even on the table. And if you do have staff, you probably don’t have much flexibility to switch them on and off at will.

3) Maybe we should look at the willingness of banks to lend. Unfortunately, where banks do lend, it’s because they’ve been dragged into it, kicking and screaming. In August, the government launched its latest programme of bank guarantees, called the “Funding for Lending” scheme. It will no doubt benefit midsized companies, but banks – especially as they are in the media spotlight as never before – are generally acting in a hugely conservative fashion towards start-ups and SMEs. They will be one of the last indicators of economic recovery, not the first.

4) Perhaps property prices and rents are a good indicator. Well, London is, whether you like it or not, the UK’s prime economic powerhouse, and in London house prices are still artificially high. Furthermore, rents across the country – both on commercial and residential property – are also overly high due to a wholly unbalanced market. Residential landlords can charge over the odds because first time buyers simply can’t afford to step onto the property ladder. And commercial landlords are taking the long term view: they would rather have their shops and offices lie empty, even though there is a surplus of space in every town centre in the UK, than permanently lower their rents. This truly holds small businesses back, and tells us very little about future trends.

5) One final thought: consumer confidence. This is the least scientific measure of economic recovery, and yet, it’s the only one on this list which might be of value to the owner-managed business. Small business owners are consumers themselves. And consumer confidence tells us what people on the street really think: are they cutting back on luxuries, or returning to the occasional holiday or splurge on a new car? Well, according to the folks at Trading Economics, July’s Consumer Confidence Index remained resolutely downbeat at -29 (its record low was -39 in July 2008). Incidentally, before you get too miserable, don’t forget that us British are generally pessimistic anyway; which is why the CCI has averaged around -9 since its inception in 1981, despite our overall wealth increasing dramatically. Even so, there’s little sign of imminent improvement.

So where does that leave the beleaguered small business?

We have examined five possible metrics for improvement, and only one comes even close to giving us a useful answer. The truth is, economic forecasting is great for bigger businesses, and largely irrelevant for the smaller trader. We’re on our own, and in most cases pretty stoic about it.

The best bet is to assume that life is going to stay pretty tough for a while yet. Western European economies may indeed never recover to the standards of the boom-years – with an aging population in need of welfare and in witnessing a rebalancing of the world economy, we may well be going through a permanent transformation in some aspects of business in the UK.

And for small businesses, that’s actually good news. Small businesses are agile, flexible and capable of turning on a sixpence. They can invent new products, focus on new streams of business, chase different clients,
increase or decrease their reliance on public sector business, and plenty more besides.

Obviously, making sales is crucial to business survival. But flexibility is the other key to commercial resilience in these times of turbulence. Here are three ways you can inject flexibility into your operations right away.

People

Change the way you work with everyone: not just employees, but also customers and suppliers:

  • Embed flexible working into your operational culture. Encourage part-time working and home working for workforce flexibility
  • Bring clients into your inner circle. They are your best advocates, your harshest critics, your fastest source of new income, and a hothouse for new ideas and needs.
  • Open the door to your suppliers. Find out whether there are mutually advantageous opportunities for compromise on processes or financial issues.

Technology

Technology has been the most powerful driver of business agility and trimmed costs in the past two decades, and benefits which were previously only the preserve of larger companies are now available to everyone:

Money

The days of money-in, money-out being the only options to small businesses are long gone. Consider some of these options, depending on your needs:

  • Crowd-funding: financing major changes by bypassing the banks and sourcing from a global community of small investors.
  • Invoice Financing (also called Factoring or Invoice Discounting): Offset the risk of bad debts by outsourcing your invoice function to a third party in exchange for a flat percentage fee.
  • Get financial expertise in, when you need it: the part time bookkeeper or accountant now has a senior counterpart in the part-time Financial Director. FDs are now available on a pay-as-you-go basis,
    giving you strategic management advice (rather than the lower-level compliance work) that’s affordable and flexible.

No small business should wait for the big numbers to augur well. The wider economy will lumber around in its own good time, during which period many thousands of small businesses will have both thrived and dived. The rules
of entrepreneurship haven’t changed at all: don’t put anything off, because there’s no time like the present.

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