David Blanchflower, a former member of the Bank of England’s interest rate setting committee, recently compared the current financial landscape to that of 2008, when the UK was on the brink of the banking crash. Evidently, these are troubling times. Both the national and global economy appears fragile as we enter into a new decade. Importantly, you need to make sure your business is ready to withstand this crash. Your finances, such as your small business VAT, must be in order as you prepare yourself for the upcoming year.
What will 2020 hold?
Over the past few years, both advanced and developing countries have seen weaker growth than usual. Due to this, the UN has warned that 2020 will likely see a recession. Factors such as trade wars, currency fluctuations, and Brexit are all amounting to an uncertain global economy. According to the Unctad report, “global growth will fall from 3% in 2018 to 2.3% this year – its weakest since the 1.7% contraction in 2009”. Because of this global strain on economy, we are expected to encounter rising levels of debt (in both developing and advanced countries), as well as a “global downturn that could increase unemployment and inequality” (as stated by Kristalina Georgieva of the International Monetary Fund). Redundancies and a decline in job vacancies on an international basis are expected to follow such a crash, with unemployment rates increasing at an alarming rate.
Will the UK be affected?
We will most certainly feel the effects of a global recession. The US trade war with China has caused a larger drag on global growth than anticipated, and the UK will be on the receiving end of the economic repercussions. What’s more, the looming prospect of Brexit poses different threats to the UK’s economy. At best, the uncertainty caused by Brexit has created a hesitant consumer base in the UK. Customers are spending less and are more cautious of businesses than ever. It is a difficult time to maintain customer loyalty, as would-be consumers are tightening their purses in the fear of a looming financial disaster.
Brexit will most likely course financial instability, depending on the deal decided. According to expert forecasts from Andrew Sentence and David Blanchflower, leaving the EU with no deal will plunge the UK into its first recession in a decade. Boris Johnson’s new deal might negate this threat, but after the transition period (which will last around a year), we could still end up in a no deal situation if a free trade agreement isn’t decided.
Of course, the exact repercussions of Brexit cannot yet be known for sure. Expert speculations have ranged from optimistic to dire, but it is important for business owners to prepare for the worst nonetheless.
Take precautions to protect your business
Despite uncertainty, there are ways to prepare your business for an imminent recession. Businesses that prepare for every eventuality are the ones that survive and thrive in the face of adversity. Leaving it too late to implement a recession strategy could be your undoing, so get ahead of the game and prepare for a post-Brexit Britain. Here are some key strategies that will help your business face economic uncertainty:
- Focus on existing customers — as we have discussed, consumers aren’t spending as much due to lack of trust and growing apprehension. Because of this, it is essential that you focus on your existing customer base during testing financial times. This will increase brand loyalty and grow customer confidence. Offer them benefits and reasons to stay true to your brand.
- Put some adjacency and extension strategies in motion — a recession is not the time to start looking into completely new avenues of profit. However, you can’t let your services become stagnant. Adjacency strategy is the optimum solution to this — find an area adjacent to your core product or services to expand into. Extension strategy is similar: take your current service a little further and offer new and exciting opportunities or products to existing customers. Ensure that you have a flexed forecast so that the business is fully prepared for all possible outcomes of this new strategy.
- Forge some powerful alliances — mergers, acquisitions, and alliances are all key strategies during a recession. Alliances offer a great way to expand your business without investing in anything completely new during times of uncertainty.
- Don’t be afraid to outsource — outsourcing key elements of your business can save you time, money, and financial anxiety during a recession. Outsourcing your accounts department may allow you create scale and flexibility within your organisation.
- Reduce inventory costs — look to see if your business has the leeway to reduce costs without sacrificing the quality of the services or products it provides. This will help to take the pressure off your finances.
- Don’t sacrifice your marketing budget — often, brands make cuts to their marketing budgets in response to financial anxiety. However, this will spell disaster for your company. There is no time more crucial to maintain your marketing efforts and show customers that your brand is tackling the recession and winning.
- Tighten up on your corporate governance – companies that see a downturn in performance are more likely to survive if they have good corporate governance embedded into their culture. Part of this is ensuring that the company has had a financial audit.