Date
05 May 2023Category
Advisory, Business AccountingFrom Brexit to the Covid 19 pandemic and now a turbulent economic climate, SMEs have had to bounce from one crisis to another recently. Too often, entrepreneurs are stuck in a cycle of firefighting and reacting to factors that feel out of their control, from a lack of cash reserves and time to deal with, to a scarcity of experienced staff and supply chain pressures. If there's one thing the past few years have taught business leaders, it's that business resilience planning isn't just a nice to have, it's essential, and building long term business resilience is critical.
So, how can SMEs bolster their ability to bounce back and leap forward when the worst happens? How can leaders build financial strength, and how can they make resilience a core pillar of their plan for growth in the future?
Lack of cash reserves are a particular cause for concern. Many SMEs dipped into their funds over the past few years to ensure there was sufficient working capital. In a lot of instances, cash reserves were boosted by Government support packages offered to help navigate the pandemic.
The UK faced another increase in interest rate in March (now 4.25%) and it is forecasted that we will see at least one more hike by the Bank of England over the coming months. For businesses borrowing on the open market, interest rates are at their highest level for 14 years. As a result, access to cash is difficult. A 90-day cashflow forecast is an easy to way to ensure sufficient funds are in place. If there are concerns during this 90-day period, business owners should seek help as soon as possible to negate this early warning sign.
Also, whether it's post-Brexit related or not, there's a war on talent across the UK and in all sectors. This simply isn't the labour, it's skillset too, which took a particular pounding during the two year pandemic. These problems are going be exacerbated in the workplace going forward. Due to scarcity of resource, wages are being driven up and subsequently increasing people costs and impacting cashflow.
In the face of constant external threats, businesses need to factor in some scope for adaptability. Many SMEs across the UK showcased flexibility while dealing with the pandemic, as they diversified their offering to make up for parts of their business that had been negatively impacted.
A crucial factor in flexibility within a business is strong relationships. If all stakeholders, staff, customers, supply chains, financiers and bankers are well bought into the business and understand what the owners are trying to achieve, it makes pivoting much more feasible to accomplish.
When we speak to an SME business leader for the first time, we often ask whether they have a ‘risk register’ or business continuity plan in place. This documents all possible threats the business could face and how they would be dealt with to ensure continued business as usual operations. There are of course risks that we can’t always foresee, such as the pandemic, but having plans in place to deal with all possible eventualities can make tackling the unknown and crisis management easier.
There are levers including reasonably delaying payments to creditors and making sure appropriate funding exists. However, while these can be considered, there’s the broader conversation around key performance indicators (KPIs) and the importance of having these in place to know what good looks like.
One KPI metric is having an understanding of the flow of cash through the business in a way that’s positive. This involves debtor days, knowing the average length of time that customers take to pay and how incomings are processed. After analysing these, ways to shorten the time required for payments to be received could be identified, as well as how requesting an initial deposit could provide short-term cashflow stability.
Empowering staff to spot financial red flags may lead to quicker identification, rather than this solely being on the shoulders of business leaders. Of course, it’s critical that staff are incentivised to look out for the company, whether through the benefits package on offer or in simple pay terms. If employees are truly bought in and invested in the company, they will do their utmost to ensure its success.
Cloud technology is becoming more affordable and there are off the shelf packages available that can be embedded within business operations quickly. These packages provide access to real-time business data to allow for quick analysis of financial metrics and inform key business growth decisions.
Many business owners consider succession planning with a focus on retirement and getting that ‘pot of gold’ for aspirations post-employment. While this is part of it, it’s also hugely important to have a plan in place for even the medium term – no matter what stage of the business lifecycle.
Planning for succession ensures future proofing as well as strategic continuity. If a business isn’t prepared for sale or exit at a sufficiently early stage, value can be significantly eroded.
If you would like to discuss any of the challenges you are facing, how to navigate the coming months or any of the above in relation to your business, please get in touch with a member of our specialist team or your usual Azets advisor.
