The media is currently buzzing with economic doom and gloom, but what are the facts and what can businesses do to ride the wave?
The Bank of England predicts that the UK will be in recession by the final quarter of 2022 so, in response (or is it anticipation?), have increased interest rates from 1.25% to 1.75%. The aim being to curb spending to stabilise the economy. The obvious downside of this move is an increase in the cost of borrowing for both businesses and individuals. To rub salt in the wounds it is likely that the Bank of England will make further rate increases over the coming months.
There are a number of reasons why the UK is finding itself, potentially, on the brink of a recession, including:
- Increased prices of raw materials and energy have led to rising costs across a wide number of sectors, including manufacturing, farming and hospitality
- The supply chain has been slowed by our departure from the EU. Deliveries are being hampered by red tape
- A labour shortage as a result of Brexit and a continuing ‘employee’s market’ have led to an increase in employment costs
- The conflict in Ukraine has sent shockwaves across the world, trade with Russia is rapidly declining and Ukraine is unable to export much of its goods
- UK inflation is at a 40-year high at 9.4% and is expected to rise further
- Our continued recovery from the COVID 19 pandemic and the implications of lockdowns in China
3 tips for businesses to navigate uncertain times
- Spend time predicting your cashflow and understanding when tight spots might occur. This will allow you to plan, make changes and find ways to plug short-term cashflow gaps. Are there overheads that you could cut back on?
- Look at a multitude of scenarios and the consequences of each. This allows you to compute best and worst situations.
- price increases and the impact of losing sales;
- the implication of winning new work;
- the effect of increased raw material costs;
- how borrowing costs might be affected by rising interest rates;
- how increasing salaries affects cashflow and profitability.
Involve your key staff in these discussions and calculations so they, too, can understand the impact of small changes.
- Know your marketplace and how your clients and competitors are doing. You can gain an impression simply by looking at credit scores. Increases in raw material costs won’t just be impacting on you, so, if you need to, don’t be afraid to make changes to pricing. Understand your position in the market. Is your product a luxury that people might decide they can’t afford? Should you be taking deposits to protect your position in relation to bad debts?
These are unprecedented times, no one can predict the future, but being prepared and taking advice from the right people should help your business through these choppy waters.
We’re here to help, to guide or simply to bounce ideas off, so get in touch if you want to chat.