By Alex Hattingh, Chief People Officer at Employment Hero
With a possible deep recession on the cards for the UK in the coming months, the outlook for many SMEs is daunting, but there are ways to navigate the impending challenges.
Here are some things you can do as a business to reduce the impact of a recession and best look after your employees.
As everyone’s budgets get tighter and purchases get delayed, small businesses might find that they’re not getting the same amount of revenue coming in as before. Likewise, their operating costs might increase, putting further strain on cash flow.
To help reduce the risk, keep an eye out for common red flags in your cash flow, including a lack of visibility and mounting bills. Get ahead of those early issues by running cash flow forecasts monthly, reassessing your business plan and speaking to your accountant or advisor about future troubleshooting.
As small and medium-sized businesses see reduced cash flow, it’s likely budget cuts are on the cards. Unfortunately, job losses can sometimes be a key part of those cuts – although that’s not to say that redundancy has to be the first thought. Just like during the pandemic, there are alternatives to redundancy, including reduced hours, job-sharing or stand down periods. Ensure you’re meeting your compliance requirements and that you’ve formalised any changes.
If you’re an SME that depends on a few large customers for the bulk of your revenue, you could be at particular risk. In a recession, everyone has to cut costs, and should you lose an important customer or client, your business could really take a hit. Make sure that you’re scenario-planning for the loss of any potential customers in the future.
As your business investigates ways to cut costs amid decreasing revenue, one of the most common budgets to get reduced is marketing spend. That said, there’s nothing like tough times to promote innovation. Now is the time to really try things differently in your marketing.
With the recession impact, it’s not just customers and businesses who get more cautious with spending. Lenders will restrict what they give out too, making it challenging for businesses to access lines of credit. There could also be an increase in interest rates and stricter criteria for eligibility.
With that in mind, SMEs should be cautious about any borrowing they’re considering for the future, as well as any outstanding loans they already have.
Making a business continuity plan is essential, not just for natural disasters or pandemics, but when your company is under financial strain. Assess the impact of a recession on your business and think creatively about how you can react.
In a recession, challenges can throw a spanner in the works of your business plan. It’s important that you don’t get too attached to earlier dreams, instead thinking creatively about how your company will survive in the future.
If the recession impact could really hurt your finances, look into available government grants and schemes for businesses. This support is often preferable to high interest loans and can be an important lifeline until we reach economic growth again.
If your payroll processes are all over the place, it might be time to consider how you can safeguard that part of your business. Having software that can regularly report on how much you’re spending, as well as how efficiently employees are being rostered on shifts, will allow you to see where cost cuts can be made.
As stressful as a recession is for small business owners, don’t forget that everyone feels the effect in times like this. Make sure you’re not just focusing on budget cuts, but considering how your team members are getting on. Share your employee assistance program (EAP) details with your team and encourage them to use it.