31-07-2008
Stick or twist? The great recession gamble
by Rosie Beasley
The UK is heading for a recession according to many economic experts and small businesses may be worried about what the future holds. Recent research from BDO Stoy Hayward has revealed that, over the course of 2009, the number of business failures could reach a high not seen since 2002, the year the dot com bubble popped. Specifically, the organisation believes that business insolvency rates will increase by a total of 18 per cent.
So what action should a business take to ensure its survival? Should operations be scaled back, or should entrepreneurs seek out new markets and opportunities? The answers to such questions really are dependent upon the circumstances of individual businesses, but there is one universal truth that applies to all. No matter what direction the economy takes, entrepreneurs must decide whether to take a risk by adapting and shaping their business to meet the reality of a recession or to play it safe and carry on as normal.
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Should you stick?
If your business is steady and achieving consistent levels of revenue you may not need to do much to adapt. Businesses that don’t rely on one big client for their main revenue and which have well balanced cash flow are well set to survive a recession. Now may not be the time to spend money trying new ideas.
However, complacency is never the way to stay on top in the business world. If growth and innovation aren’t on the cards then businesses should look inwards at how they can look after and hold on to their existing clients. Client relationship management is key to success at the best of times and should be the highest priority in the worst times. Businesses and consumers are liable to shop around for the most cost-effective options when the belts have to be tightened, so it’s worth researching what your competitors are doing so that you don’t give your customers a reason to switch.
Cash flow fluctuations should also be monitored closely. Even if your business is doing well, your clients’ businesses may not be. This can cause problems for your cash flow if they suddenly decide to start delaying payment of your invoices. Businesses can protect themselves against these problems with an invoice finance facility.
While invoice finance is a form of lending, it is not the same sort of debt as a loan or overdraft. Money is advanced against a raised invoice and is repaid to the lender when the invoice is settled. Because a business is having their invoices paid upfront, it is better able to manage its finances.
Should you twist?
Any entrepreneur worth their salt will look around them in times of trouble for new opportunities.
Many retailers are already adjusting their marketing to new customer trends – for example, supermarkets are encouraging customers to have a special meal at home rather than spending extra on a restaurant.
And it’s not just retailers that can branch out into new areas. They key is to look at the things that people and businesses will spend money on in hard times and find a way to offer that product or service in a better way or for less money.
Comparison websites are experiencing a boom because of this very reason. Customers are shopping around for cheaper deals rather than sticking with their existing suppliers out of habit. In fact more money than ever is being spent on the internet where the best deals are often to be found. If your business has a website, it should now be working a lot harder to pull in new business and is an excellent way to offer new products or services to your customers.
Some types of business that are doing well in the face of the credit crunch are chocolate retailers, takeaway outlets, ebay and similar web-based retailers, computer games and DVD retailers and alternative finance companies, such as those that offer asset-based lending or invoice finance.
If you do decide to go for a new opportunity, ensure that you’ve fully researched the demand for it and the costs of offering it before ploughing ahead.
Some peace of mind in the chaos
Many small businesses survived the last recession and the same will be true of this one. Something that can offer peace of mind, however, is knowing that your business is insured. Covers that have been developed specially for businesses include Business Interruption cover, Tools and stock cover and public liability cover. Knowing that your business isn’t at risk financially if an accident happens or if you are the victim of a theft will allow you to focus on the more important job of surviving and thriving during this economic downturn.
