SME tips for 2023: The status quo no longer works

By Douglas Grant, below, CEO of Manx Financial Group

Two years into the decade and SMEs have dealt with many setbacks. Although the notion of survival is a good but primitive instinct, the status quo, in 2023, will not maximise business performance. We are more primitive than we think. Likely reeling from the need to survive the permacrisis of 2022 – an extended period of instability and insecurity – this instinct is stronger than ever.

Just two years into the decade and SMEs have dealt with a pandemic and its aftershock, the Ukraine war, and a slump in the UK economy that saw the Bank of England warn of a “material risk to financial stability”. And three prime ministers. Yet SMEs must continue to brace themselves, as more challenges are on the horizon for 2023. To overcome these factors, the first step would be to review the basics, as the status quo will not maximise business performance.

This looming recession is different from the COVID-19 economic downturn and echoes that of the 1970s, with general strikes, government flip flops in terms of fiscal policy and market uncertainty. Learning from previous economic crisis’ and knowing what we need to carry over into 2023 to become more strategic and resilient is tough, but here are three housekeeping rules to bear in mind:

1. Nurture good talent and embrace the lessons of COVID

Following the COVID-19 pandemic there has been a shift away from the culture that defined the way of work pre-pandemic. Increased numbers of people are less concerned about climbing the corporate ladder and would rather enhance their quality of life, known as quiet quitting. SMEs must listen to their employees.

As we continue to live with the uncertainty of what lies around the corner, now is the perfect time for SMEs to evolve their businesses into becoming recession proof. As the supply chain issue and energy crisis continue, diversifying services or products to meet clients’ needs should not be overstated. SMEs should now start and act quickly, or build upon their environmental, social and governance (ESG) journey so their businesses can make money today, tomorrow and in the next decade.

When a business has talent and diversification, it makes the case for hybrid working easier, especially for recruiting and retaining talent. SMEs should develop a technology strategy for transformation to succeed. The speed at which technology evolves can affect how SMEs grow, but embedded in the right way, there is a potential that productivity and efficiencies can improve and thrive.

2. Gain market share in resilient sectors you understand

Take a look at agriculture, the UK is over dependent on food supplies being brought to the island. The UK needs to be more self-sufficient. Then look at what supports agriculture, there’s fertiliser, there’s plant and machinery. There are a lot of market sectors around the agricultural scene which is just an evolution of ESG. Similarly, the UK is too dependent on other countries for fuel supplies, alongside wanting to get to carbon neutral by 2030. SMEs should be looking at low carbon fuel generators and on the other side of the coin, look at how to protect what we are currently eroding, such as who is planning, building and maintaining infrastructure such as our sea defences – to help ensure the planet is still habitable for future generations.

There will be transport infrastructure projects which will need investment and at that point SMEs should be thinking about, where are they going to be? And how can they interact in that project?

3. Optimise your working capital

What stands true is that real people are behind SMEs, and real people have the same concerns as real businesses, which is liquidity. Earlier this year a YouGov study, commissioned by Manx Financial Group, noted that the lack of finance was causing these businesses to halt growth plans. It stated that more than one in five (22%) small business that needed external finance and/or capital over the last couple of years were unable to access it. Moreover, 27% stopped or paused an area of their business because of a lack of finance. As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated.

Structured finance is an option that will help with the funding of assets that are critical to these businesses to still make goods and services for the sale.

But important to note, especially at a time where reserves are running low, SMEs should still pay creditors and not over chase debtors. At the centre of this, we are all human, there should be sympathy for people who are in the same position. To overcome this challenge, another option would be for SMEs to lease an asset to preserve their cash flow, instead of putting up large chunks of cash and buying assets.