The straw that might break the camel’s back?

The straw that might break the camel’s back?

Lots of emphasis is placed on the importance of SMEs to the UK economy.  Rightly so, given that they make up, according to UK government figures, 99.2%  of the business population, as well providing 61%t of the employment and 52% of turnover in 2021.

Despite this, the 6% failure rate in 2021, which equates to nearly 390k companies, does not seem to merit anywhere near the attention that it deserves – particularly given the prevailing UK economic conditions, meaning that figure is likely to accelerate rather than slow.

More worrying perhaps is that many SMEs have barely had time to think, plan or recover from wave upon wave of seismic changes that have been forced upon them over the last few years.  From Brexit, through Coronavirus, and now to generalised inflation and the specific challenges posed by the energy price explosion; the impact on SMEs has been significant

Indeed, the Federation of Small Business’(FSB) Small Business Index report for Q2 2022 suggests that only 46.6% of businesses think that they will grow in the next 12 months, whereas 53.4%  feel they will either stay the same size (38.7%) or downsize or close their business (14.7%) over the same period.

It is worth noting the impact has and will not be felt equally across the SME landscape For example, 62.9% of FSB members in the information and communication sector predicting growth versus less than 35% of hospitality or wholesale and retail firms expecting the same. When you consider which of these sectors have the greatest number of employees, you can understand why general nervousness is unlikely to diminish.

A simple internet search of ‘energy bills close’ brings forward many heart-breaking stories of businesses closing or facing closure due to the looming energy cost crisis. The end of  fixed energy prices being stated as one of the main reasons that retail stores, restaurants and high energy usage businesses seemingly are closing their doors.

So, what can businesses do?

Aside from the many calls for government assistance for the sector there are a number of things that we suggest businesses can look at to help them during these difficult times.

Firstly, many businesses are changing the way they operate. With businesses moving to work smarter rather than harder. Some are doing this by opening only during their busiest hours, which is helping many restaurants and takeaways save on wages and energy costs during these difficult times.

Secondly, businesses are communicating more openly with their customers; explaining their need to change their ways of working and the price rises they are forced to pass on to the customer. One chip shop even posted their cost profile and increases in a notice to their customers to explain why they have dramatically increased the price (and altered their working times) to the end customer. It might not be the ideal solution but what it does  is show your client base that you value them and demonstrates that, if they want your business to continue, then it’s a joint effort during these difficult times.

Finally, focussing your business on core customers and changing or pivoting your offering to match changing demographics is yielding results as businesses realise there are underserved opportunities or areas of growth which they can tap into. For example, traditionally business-to-business providers that have leveraged the challenging times to build a direct-to-consumer offering are able to benefit from the full margin in the supply chain as well as owning customer relationships to both futureproof and develop their business going forward.

You must have a plan… and sustainability is key!

The final thing to remember is that businesses with a focussed plan perform better than those without.  Research by both Cranfield and Warwick universities shows that the top performing businesses all have a clear, thought-out business plan which overall means they are growing 33 per cent faster than those without.  This means having more than just a set of financial forecasts but a clear idea of where you want to go and how you are going to go about getting their strategically and operationally.

Increasingly these days this incorporates significant elements of sustainability within that plan as SMEs realise they need to start to focus on the net zero goals which had previously been the preserve of heads of state, governments and large quoted businesses.  Increasingly, leading SMEs are recognising that there are opportunities by focussing on sustainable growth rather than just costs attached to it as well as potential to build business which are less costly to run and work with less price focussed target customers.

Afterall, those businesses that invested in solar power, insulation and easy wins such as LED lighting are now reaping the rewards through energy cost savings which are increasingly significant in nature.

How is the camel’s back?

The short to medium term future for a lot of SMEs will be difficult.  Depleted resources as a result of COVID, linked with increased costs of doing business generally will mean that many will suffer, particularly in some very key sectors.  That said, there are always opportunities and those businesses that have a clear and focussed plan to deliver an excellent product or service with a clear proposition to a researched and identified customer need will continue to do well.  The key is to have a clear plan and execute it efficiently, and if there is bad news to deal with consider how you can alter your business or communicate with your customers to survive and ultimately thrive!