The UK’s nascent recovery could start to pick up steam next year, according to a new report.
The Ernst & Young Item Club has suggested that the UK economy could grow by 2.2 per cent in 2014, rising to 2.5 per cent in the following year. Consumers are, it claims, “switching their attention back from saving to spending.”
This will come as a surprise to many of the UK’s firms. Trading conditions remain tough, and many continue to struggle. But it is important to remain ready for any eventuality and, as such, you should consider ways in which you can prepare your business for an upturn.
Check your KPIs
Give your business a metrics health-check. Ideally you will have already identified the key performance indicators, or KPIs, that help you keep track of the progress of your business. The KPIs you use will depend on the nature of your venture, but they might include things like turnover, sales volumes, profitability by customer, and average invoice ageing periods.
Through consistent monitoring of your KPIs you can begin to determine the health of your business. They will provide you with a ‘dashboard’ overview of your current position. It is vital that you have a working understanding of the state in which your business currently finds itself, and this knowledge can help you adapt to changing economic circumstances.
Read more about setting and measuring KPIs.
Prepare for changing habits
Spending habits tend to change during a downturn and, as such, you may wish to factor in a potential change when and if the upturn comes. For example, lower value ‘luxury’ items tend to do well in recessions (sales of lipstick go up during downturns), while higher ticket purchases are unsurprisingly more popular during the good times.
You might consider diversification during this period. By broadening the range of products and services you offer, you may stand a better chance of capitalising on those changing spending habits. You might develop or acquire products or services that are complementary to those you are currently offering, or you might think about expanding your offering into new markets. Remember, though, to keep an eye on your core business. Diversification should not be carried out at the expense of your bread and butter.
Refresh your marketing
In order to capitalise on an upturn you need to ensure that your marketing is in good shape. Take some time to review your current marketing arrangements. Are you monitoring your marketing return on investment (ROI)? These metrics are notoriously difficult to define, but by doing so you can help to ensure that you direct your efforts and your funds in the most efficient way.
Give particular thought to your price promotions. Remember that these may be less effective during periods in which people’s pursestrings are loosened. Instead, consider playing up non-price factors such as product quality and customer service.
Find more information in the Marketing section of our Knowledge Centre.
Be prepared for rate rises
Finally, it is worth noting that the immediate future is not necessarily all roses. Of course, the primary risk is that the upturn the ITEM Club predicts will not materialise. Aside from that, though, perhaps the most significant factor to which small businesses should be attuned is that of interest rates. There is a significant risk that the base rate will rise in the medium term from its historic low of 0.5 per cent. This could have a major impact on every firm. Those that are carrying debt will see their repayments rise, while those who offer credit may see late payment increase as their clients struggle with their own repayments. It is vital that you factor a potential rate rise into your financial planning.