We explored how companies can cope with rising inflation in our blog last month, as business owners are facing big challenges to maintain or grow their business in an uncertain economic climate.
Are we in recession?
A recession is usually defined as when GDP (Gross Domestic Profit) falls for two consecutive financial quarters. The UK economy was last in recession in 2020, at the height of the pandemic and it’s been narrowly avoided since then. The Office for National Statistics (ONS) reported that the UK saw zero growth in the last quarter of 2022 and The Office of Budget Responsibility (OBR) expects the UK economy to shrink by 1.4% in 2023.
So we’re in a slowdown, with customers spending less leading to falling sales which impacts revenue and profits. A prolonged period of slowdown means that revenues don’t grow in line with expenses so profits and cashflow dwindle. Businesses tighten their belts, cutting costs, holding less stock and reducing payroll.
Can a business be recession-proofed?
Despite what many people think, a recession or economic slowdown can provide opportunities to grow, if your business is resilient and flexible. Recession-proofing a business isn’t about battening down the hatches and hiding away, times of slower sales can be made use of:
- Take stock: slowdowns provide the opportunity to reorganise the business and improve efficiency without the need for rushing.
- Training: catch up on staff development that was lacking in the boom time. Create a happy, well-motivated workforce.
- Time to grow: people often look to sell their business as they reach retirement or hit hard times, so acquiring customers, equipment or premises can be more cost-effective.
- Fix things: there are always jobs that get put off in busier times, now is the time to clear the backlog of maintenance and IT issues.
A key step is to keep a close eye on the business metrics and keep communicating with employees, customers and suppliers. Key metrics to watch are debtor days, cash flow, profit and margins – all indicators of overall business health. Speak to customers about price or service changes, to banks about loans and finance payments, and engage with staff about business waste and flexible hours.
For other ways to adjust the business for resilience, look at trimming budgets, right-sizing prices, adjusting stock levels and efficiently allocating staff. Put measures in place to build a cash reserve for next time we hit a slowdown or recession.
With years of business planning success under our belts, the team at CRM have helped businesses to weather many storms over the years. Through our 8 Step Business Improvement Programme, we work step-by-step through tried and tested processes to grow business success. Find out more online or call the friendly team on 01865 379272.
