After lockdown brought British businesses and the UK economy to a standstill, it officially plunged into recession in June.
The GDP plummeted in the second quarter by 20.4% compared with the previous three months, representing the largest quarterly drop since comparable records began in 1955. And despite the economy and British businesses opening up again over the last few months, there are fears the recession will last until spring 2021 at least, as coronavirus infections rise and restrictions are introduced again.
All of this has proven devastating for enterprises. The COVID-19 crisis could cost small businesses around £69 billion in total and roughly 234,000 have already stopped trading. According to McKinsey, 80% of SMEs (small and medium-sized enterprises) have reported declining revenues and almost a quarter are concerned about their ability to retain staff. Worryingly, McKinsey predicts that up to half of UK SMEs could be out of business by May 2021. Even the country’s biggest companies aren’t immune from the effects of the recession either, with nearly half believing they won’t return to pre-pandemic business levels until the second half of 2021.
But just because the situation is fraught with jeopardy for UK companies doesn’t mean they can’t come out on the other side as unscathed as possible. In fact, there’s no reason why they can’t prosper in the current environment, as difficult as it may be. Here are three ways British businesses can navigate the recession.
1. Automate processes for greater productivity
A company’s ability to survive and thrive is largely down to the work it can get done and the money it can bring in as a result. As such, any productivity bottlenecks are an impediment to this goal. And in this current climate, low productivity could be a death knell for a company. While there are so many means of bolstering this, arguably the best way to do so is via automation. Many enterprises waste so much time and money undertaking processes manually, with 42% yet to embrace automation at all. However, 45% of all business activities can now be automated, including everything from creating proposals and managing social media accounts, to market research and simply moving data between different sources.
There are numerous automation tools out there to choose from, but one of the most popular and effective comes from SAP, whose ERP (enterprise resource planning) software has a 22% share of the global ERP market. This acts as a suite of integrated applications that can be used to collect, store, manage, and interpret data from various areas of a business. It includes everything from the procurement of goods and financial accounting, to supply chain management and production planning. Having all this information in one place saves companies from spending time locating and copying it between different sources, enabling them to make quicker and better-informed decisions. Within SAP ERP itself, businesses can automate processes like data entry, product order management and invoice processing, among so many others, further boosting productivity. Though, while the software can prove game-changing for enterprises, it may be difficult to get to grips with straight away, which is why many hire SAP specialists to help them do so, even if it’s on a part-time basis.
2. Protect their cash flow
Recessions naturally lead to smaller profit margins, which can make maintaining a healthy cash flow incredibly difficult. And if this cash flow does dry up, it could be terminal for a company. So it’s critical that businesses protect this and keep themselves afloat. Some options include:
Reducing unnecessary spending
Research by Deloitte has found that 76% of UK companies intend to reduce costs due to the impact of the pandemic, and following their lead is certainly a smart move. By auditing their enterprise, business owners can gain a holistic view of expenditures and work out how to cut costs. This may include doing things like getting rid of office equipment should they now be remote-based, using free software instead of licensed versions, and reducing inventory levels. These financial gains can then be funnelled into necessary business spending.
Renegotiate vendor agreements for better terms
Business owners should remember that their vendors are likely struggling to get by too, and might be happy to renegotiate contract terms rather than lose this custom altogether. As such, it’s probably a good time to ask for reduced price rates or more flexible payment terms while the economy’s struggling. You may even be able to negotiate discounts for cash or early payments for your company.
Seek financial assistance
It’s better to apply for financial assistance before things get tricky, rather than waiting and risking it being too little too late. There are multiple options out there for companies, including business loans and grants from banks and other financial organisations, as well as government funding.
3. Focus on core competencies
Most businesses tend to have core products or services they’re known for, and this is what will see them through the recession. While there are appropriate times to put money and effort into a new avenue with an unknown ROI, that time isn’t now. Considering the precarious nature of the current situation, taking unnecessary risks like this is not advisable. Though this could lead to huge rewards, it may also create avoidable financial troubles that leave the company in the mire. Indeed, taking on a whole load of new debt during a recession tends to be a bad idea in a lot of cases.
Instead, businesses are better off scaling back to the products or services they know perform the best. This doesn’t mean companies should stand still—rather, they should do everything they can to maximise the prospects of these core products or services. This will ensure profit levels remain as consistent as possible, helping keep their head above the water during these trying times. Ways to do this include upping marketing spend, coming up with new revenue streams, and introducing customer retention strategies to keep existing customers on board.