By Nicky Tozer, above, EMEA SVP at Oracle NetSuite
The current economic pressures that face businesses of every size are bringing out an impressive ingenuity, flexibility, and robustness in SMEs. According to The Federation of Small Businesses (FSB)’s Small Business Index from April to June, 46.6% of businesses – almost half – are anticipating growth. Energy costs, rising interest rates and high taxes are challenges that can be negotiated with the right strategy, with growth and expansion the reward for a founder’s hard work. In this article, I explore four key approaches that any SME owner can adopt in order to better manage uncertainties and maximise their chances to prosper in today’s economic climate.
Pick up crucial new skills
One of the most important factors in the success of any new company is an SME founder’s ability to pick up new skills throughout their organisation’s growth. Take the time to partake in training, learn from peers, and speak to experts, or mentors. Our recent survey found the majority (91 per cent) of UK SME founders have had to develop new skills since starting their business. Customer service (56 per cent), marketing and communication (49 per cent) and finance and accounting processes (45 per cent) were three of the top skills UK SME founders have focused on developing the most.
Additionally, founders have seen their personality traits and attributes change since becoming an entrepreneur. Over half have increased their resilience (57 per cent) and adaptability (55 per cent), and 48 percent has developed their financial acumen – all of which are crucial skills when it comes to navigating business challenges such as current inflation pressures. Adam Taylor, co-founder of PetShop.co.uk, explains the significance, “Accounting and finance skills are key for any founder; you need to understand your gross margins and profitability. If we had understood our financials and gross profit better in the early days, we would have perhaps diversified earlier on into higher margin products.”
Shift priorities with confidence
It’s no surprise that 88 per cent of SME founders we surveyed are concerned about the business impact of rising inflation, and 83 percent about a recession. As such, founders are proactively moving to strategies that will help them mitigate, or eliminate, the impact of these concerns.
Over two-thirds (76 per cent) of founders have changed their business plan in the last two years. To do this, knowing the financial health of their business at any moment is critical – which is why so many businesses turned to the cloud during the pandemic, and continue to rely upon it today.
Cloud technology is essential for running critical aspects of a business, including accurate financial reporting, remote management, and speeding up manual processes. Despite the current economic climate, 44 per cent of cloud system users were able to change strategy during the pandemic, versus just 12 per cent of those who weren’t cloud users.
Cloud users were also far more able to automate key processes and avoid manual work (85 per cent vs. 37 per cent of non-users). While 50 per cent also effectively expanded their go-to market channels and were almost twice as likely to expand internationally. These are big business decisions, and only possible to execute with total confidence through the control and agility inherent in the cloud.
Strengthen your supply chains
Developing an agile, robust supply chain that can survive disruption and shortages has become a cornerstone of business resilience. One of the most prominent changes to consider is the shift away from the Just-in-Time (JIT) approach towards the ‘Just-in-Case’ approach. JIT was designed to minimise overheads on unnecessary storage and transportation as well as waste. It was not intended for a volatile supply environment, or to mitigate any risk of unpredictable shortages or shipping delays.
The ‘Just-in-Case’ approach, by contrast, involves securing sufficient supplies proactively in order to pre-empt stock shortages, protecting profitability in a volatile supply chain ecosystem. Supply chains can also be strengthened through Service Level Agreements (SLAs), which set the minimum acceptable levels of performance in stone. If there are elements of the supply chain that are consistently failing to meet expectations or demand, work with finance and procurement experts to re-examine your supplier contracts, and establish stronger relationships with preferred suppliers.
Focus on nimbleness
Always prioritise agility; all of the strategies mentioned so far require a business to be comfortable in changing direction at speed. Both long- and short-term business plans should incorporate some element of versatility, so that the company can adapt quickly and appropriately to new conditions. As part of this, work with finance and supply chain teams to stress test “what-if” scenarios.
For example, when it comes to inflation, test scenarios such as the impact of raw material prices doubling or supply chain disruptions causing 25 per cent of revenue delays. Then ask questions such as, how cash flow will be affected, what evasive manoeuvres can be taken, and how risk can be lowered with preventative measures. Planning in this way enables SMEs to proactively drive towards desired outcomes and identify opportunities and challenges.
Focus on resilience and adaptability
Despite some tough tests for small businesses, we keep seeing more founders come to the fore with new ideas. 726,000 companies were born out of the 2020 lockdowns, which is a 14 per cent increase on the previous year. This is a testament to the commitment and ingenuity of those looking to start their own project. These tips are all weapons in a founder’s arsenal that could make a key difference to business efficiency and growth.