Is your business resilient enough to survive 2023?

Small and medium-sized enterprises (SMEs) and entrepreneurs are critical drivers of employment, innovation, and growth in all economies. In the OECD area, SMEs employ more than half of the private sector workforce, while in the European Union, they make up over 99% of all businesses, with 91% of these being micro-firms with less than 10 workers. The importance of SMEs to economic recovery cannot be overstated.

In the UK, SMEs account for 99% of all businesses and employ over 16 million people, making them a vital component of the country’s economy. However, global market shocks such as economic recessions, trade wars, and pandemics can significantly impact their finances and operations, leaving them vulnerable to the adverse effects of such events.

Even in ‘normal’ economic conditions, governments have recognized the need for specific policies and programs to support SMEs’ survival and growth. In recent times, small businesses in the UK have been particularly hard hit by several challenges, including Brexit, weaker currency, wage inflation, higher taxation, and a generally weak economy.

As a result, SMEs are increasingly seeking effective strategies to navigate these challenges, survive global market shocks and emerge stronger. This raises the question, what can small businesses do to increase their resilience and thrive amidst these challenges?

1. Diversify your product offerings and customer base

Small businesses should consider diversifying their product offerings and customer base to reduce their reliance on a single industry or market. For example, a small business that traditionally sells products to a specific industry could explore opportunities to expand its offerings to related industries. This can help the business to tap into new revenue streams and increase its resilience to market shocks.

Similarly, small businesses can benefit from diversifying their customer base. If a business is heavily dependent on one or two customers, a change in their demand or financial situation can have a significant impact on the business. By reaching out to new customers, a business can reduce its reliance on a small number of customers and spread its risk.

2. Maintain strong financial management practices

Small businesses must maintain strong financial management practices to survive global market shocks. This involves keeping accurate records, monitoring cash flow, and having a robust budgeting and forecasting process. By doing so, a business can make informed decisions about how to allocate resources, manage expenses, and plan for the future.

Regularly reviewing and updating financial plans is crucial for small businesses to adapt to changes in the market environment. During a market shock, tough decisions may need to be made, such as cost-cutting or increasing investment in specific areas. It is important to ensure debts are paid on time and to be vigilant about suppliers and customers experiencing financial distress to avoid over-exposure to them. A solid financial plan can help a business make these decisions with confidence and reduce the risk of making decisions that could harm the business in the long term.

3. Build up cash reserves

Building up cash reserves can provide a business with the financial stability it needs to weather short-term disruptions and ensure that it can continue to operate even when revenue decreases. Small businesses can build up cash reserves by managing expenses carefully, reducing debt levels, and increasing savings.

In addition to building up cash reserves, small businesses can also explore other sources of funding, such as government grants and loans, to help them weather the storm during a market shock.

4. Foster strong relationships with suppliers and partners

During a market shock, strong relationships with suppliers and partners can be critical to a small business’s survival. By working closely with suppliers and partners, a business can negotiate better terms, secure critical supplies, and ensure that it can continue to operate even when conditions are challenging.

Small businesses can foster strong relationships with suppliers and partners by communicating regularly, being transparent about their needs and challenges, and exploring opportunities to collaborate and support each other.

5. Invest in digital technologies

Investing in digital technologies can help small businesses become more efficient, flexible, and competitive. For example, cloud-based software can help a business manage its operations, automate repetitive tasks, and reduce costs. Digital marketing and e-commerce platforms can help small businesses reach new customers, increase sales, and boost revenue.

Investing in digital technologies also allows small businesses to adapt quickly to changes in the market environment. For example, during the COVID-19 pandemic, many small businesses were able to pivot to online sales and remote work thanks to their investments in digital technologies. Data suggests that in a matter of eight weeks, we have vaulted five years in consumer and business digital adoption. The outbreak has led to structural shifts including in customer preference of digital engagement and moving to remote working models for employees, which are likely to remain even post–COVID.

The current financial crisis has had a significant impact on SMEs in the UK, leading to widespread financial difficulties and uncertainty. Despite the government’s efforts to provide financial support, many businesses are still struggling to access the help they need. The ongoing crisis has also highlighted the importance of digital transformation for SMEs, as businesses look for ways to adapt and remain competitive in a rapidly changing marketplace. By taking these steps, small businesses can weather the storm and emerge stronger and more resilient in the long term.

Where Now Consulting Ltd is a business advisory company and consultancy. Focusing on growth and business transformation we work in partnership with our clients to deliver improved business performance. Our team have a range in skills from sales, operations and finance enabling Where Now Consulting to provide a holistic approach in the support of our clients. Where your business is looking to devise a new strategy for growth or is looking at business transformation as the result of a crisis of strategy, profitability or liquidity, Where Now Consulting is your partner for future success.