Back to basics: four ways SMEs can prepare for economic downturn
Data from Barclaycard’s latest SME Barometer has shown that the economy is seen as the greatest challenge to small business owners over the next 12 months, alongside increased costs and inflation.
In this article we explore four key areas where SMEs can take control and ready themselves for any difficult times ahead.
Focus on the essentials
As pressures mount, taking stock of your core goals and the means to reach them has never been more important. While a reduction in spending may be unavoidable for some, decisions should be made judiciously.
For example, while marketing spend is often an early casualty during periods of belt-tightening, with only 31% of SMEs planning to invest in marketing over the next 12 months, there is big potential for businesses to stand out with a bit of smart marketing spend.
Similarly, while a review of staffing levels and pay can deliver cost savings, the potential dent to morale and productivity means that hasty decisions should be avoided. If cuts to staffing do need to be taken, it is also important to consider the long-term view. With many sectors reporting a shortage of viable candidates, it’s important to consider whether you will be able to refill the positions when conditions improve.
Future-proof your supply chain
53% of SMEs have been dogged by supply chain disruptions over the last three months, identifying the major causes as Brexit (48%), availability of transport/logistics (40%), delays in delivery due to extended import timelines (40%) and limited availability of items manufactured overseas (42%).
Fortunately, reports suggest supply chain issues might at last be starting to ease, yet future-proofing your supply chain will still be important. Conducting a review of your suppliers can help you understand whether further diversification could lead to a more resilient future for your business.
You should also consider the value of using customer data to better predict future demand and remain a step ahead. Tools such as Smartpay Touch can support you in this process by helping to track customer trends, manage stock and create an efficient ordering process with suppliers.
Manage any price increases with the customer in mind
78% of SMEs are concerned about rising bills and inflation, and 40% fear that increasing their own prices in response could impact competitiveness. But, with 42% saying that the pandemic demonstrated the importance of local businesses to their communities, harnessing this positive sentiment could be a way to maintain customers through the challenging months ahead.
For some small businesses with consumer goodwill in the bank, being honest with customers and giving advance warning of any price increase will stand you in good stead, particularly if you can offer value where bigger, cheaper competitors can’t (through exceptional service, for instance).
Remaining competitive on key items and avoiding raising costs across the board will also help soften the blow of any price increases. It may even be possible to avoid price rises by looking at alternatives such as minimum order volumes or offering subscriptions, which as well as benefitting the customer can also help a business more easily understand the likely supply and demand of their product. A supply chain review may reveal the benefits of sourcing locally, which could not only increase flexibility of supply but also bring cost savings that could be passed onto the customer.
You may also wish to consider accepting new payment methods such as Buy Now Pay Later (BNPL), which would help customers manage their finances and may even lead to higher basket values for your business. BNPL is not without its risks, though, so it’s worth investigating the right payment options for you.
Take control of your cashflow
In times of economic hardship, it’s key to have access to cash. It might be worth considering applying for a cashback credit card with a long interest-free credit period to give you more control over your cashflow.
It might be possible to negotiate quicker payment terms with your customers, or even offer discounts for early payments if it will improve cashflow. Sending out invoices as quickly as possible is also key for getting money in the bank fast. Good accounting software such as FreshBooks (available free to all Barclays and Barclaycard Business customers) can help reduce some of the load here.
For more support and advice on keeping your business finances healthy, navigating health challenges and life events or simply improving your digital skills, visit the Barclays Business Health Hub.
You can also learn how award-winning food producer Piglet's Pantry has overcome cashflow challenges and grown a small business to a national scale in our lates small business interview series in partnership with Sky.