Recession and your business |
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Management
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Written by Gary Howes
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Wednesday, 23 July 2008 |
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What are the main obstacles for your SME to overcome in a recession? While the UK is not technically in a recession it certainly is in a slow down. Some sectors of the economy such as manufacturing are looking decent enough – but others – such as construction are suffering.
Most industry experts believe that should the current trend of downturns continue in various sectors of the UK economy we very well could find ourselves in a recession.
Here is what a recession could mean for your SME - and in response to each scenario - we offer some potential steps that can be taken to remain above any further downturns in the economy.
Inflation and increasing expenses
A recession is often characterised by high inflation will mean that your monthly expenses could increase, this despite having to face the daunting task of maintaining your profits. This could eat into your savings and pose financial problems as the days go by.
You can reduce your expenses by cutting down or splitting them. All experts are unanimous in saying that unnecessary expenses should be totally avoided - and only those expenses related to your business should be attended to on a priority basis.
Therefore, in advance, take a long look at your expenses and identify where changes can be made.
Sales and Profits Could Be Down
The first casualty during any recession is usually sales. Fortunately at present sales in goods seam to be resilient to the broader downturn, especially if you are exporting to overseas markets.
However not all sectors of the economy may prove to be immune and once sales are down, then it usually isn’t long before profits could follow.
If in the past your sales have been excellent, and if you can afford to take a little downward trend in sales in stride then don’t worry; but if you really need to increase sales even at the cost of incurring additional expenses, then there are two ways to achieve this.
One is to lower profits in an attempt to achieve higher sales figures. The other way would be to spend more on marketing and advertising while keeping your profit margins unchanged.
This will still lower your profit figures due to an increase in your marketing expenses. However, this move would not only increase your presence in the market but you could be the first to reap the benefits as soon as the economy emerges from the recession.
Take control of your inventory
Maintaining a large inventory during normal times is difficult, but during a recession, it could prove to be a ball and chain dragging you down. You should learn to rotate your inventory faster so that your profits can increase.
Use the latest technology available to keep track of your inventory. These are not very expensive and are usually very easy to learn and use. Dispose of all your slow moving products through fire sales if necessary.
Make sure you get familiar with 'Just in Time' methods to maintain your stock and delivery schedules.
Keep moral up
The effects of the recession could affect the morale of your staff as they battle to pay rising expenses on a limited income.
You can try rewarding your most deserving employees or help them out by providing them soft loans to tide over the crisis. However, you will also need to remove deadwood from your payroll, and let go of any employees who are not up to the task.
This will result in a leaner but fitter staff for your business.
People can debate on forever as to whether there is a recession going on at present, but whatever title is given to this economic downturn, it will nevertheless affect your business. The above methods might just help you to survive to fight another day.
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