In a series of 4 blogs, we will be delving into all you need to know about the recession, including how to prepare for a recession, our take on the recession, what to expect, and how to thrive. Stay tuned.
Within this blog, we will be sharing tips on preparing for a recession, allowing you to start evaluating your business offering and making changes to be a success for years to come.
Is there going to be a recession?
A recession is defined as two consecutive quarters of negative growth in the economy. If you’re wondering will there be a recession, the Bank of England, believe the UK will fall into a recession by the end of the year.
Rising energy prices, an increased cost of living and interest rates still on the rise, have all contributed to consumers having less money in their pockets than they had before, and less disposable income to spend on what they want.
Rising uncertainty also causes consumers to be less likely to spend their money, contributing to the problem even further.
How SMEs can start preparing
Below I have created three steps to follow to build a solid and robust company that will stand the test of time through a recession. The key here is adaption.
Step 1: Review business costs
An accountant would recommend you review your costs. However, I would recommend you go one step further and categorise your costs into:
- Essential costs – ones that allow the business to function or remain compliant
- Investment costs – ones that impact future outcomes, such as training, marketing, product research and development as well as money put aside for depreciating costs, for example, once a computer breaks
- Discretionary costs – things that are nice to have but are not essential to the business, such as chairs in the waiting area. They would look appealing but are not necessary for generating income on to your bottom line.
Essential costs clearly need to stay, but could you get them cheaper or be more cost-effective? This could be achieved by going with a different provider or perhaps reviewing its functionality and seeing if you can downgrade to a different package if not all elements are essential.
Due to investment costs largely impacting the company in the long run, it would not be advisable to cut this cost over a period of time as it will have a substantial impact on the business, in the long run, making it even harder to recover.
Discretionary costs however are the most beneficial things to cut, so you should be cutting here first until the stress period of the business has passed. A drastic option may include ending the lease on your office building and implementing remote working for all employees (if your business operation would allow for that). Or if you own the building, potentially even renting out part of the office building to another business and adopting hybrid working. These are all options worth considering as they will ease up some of your financial costs.
Step 2: Review your offering
Once you have reviewed your costs and looked at ways to cut these, now take some time and think about your product or service offering to customers.
Is your offering a necessity purchase?
From the viewpoint of a customer, is your offering likely to be perceived as a necessity or a discretionary purchase? In other words, can your target audience do without it?
Now consider, can you, as a business justify your offering as an investment and present it that way?
Think about how you can:
- influence their perception of your product/service
- communicate your offering differently so that it is clearly either a necessity or an investment
- adapt your offering to make it a necessity.
An example could be a beauty salon that offers back massages. On the surface, you may consider this service to be perceived as a discretionary purchase. However, when you adapt your message and sell your offering as a way to relieve stress, improve health and well-being and alleviate back pain caused by stress, your offering starts to become a necessity.
Could you appeal to a different target audience?
When considering adapting your offering, could you look at appealing to a different target audience that is not as sensitive to price?
How about adapting your offering?
Consider how you could adapt your existing offering so you either break your offering down and only deliver parts of it or perhaps change the frequency in which you deliver the offering.
For example, if you were a window cleaner, you could consider offering window cleaning bi-monthly instead of monthly. By doing this, you may need to find a larger quantity of customers, but customers are more likely to stay with your service as it’s less of an expense than before. Therefore the volume-value relationship would keep in balance.
Changing your target audience and offering together is risky!
We’ve presented a couple of different options above about changing your offering or target audience, but we would recommend against changing both simultaneously as this can be a very risky move, especially when looking to prepare for a recession.
This is because by doing this you will be entering into completely new territory, with a new target audience and product or service offering. To make this a success, you will likely need high investment and substantial new research completed to identify if it is even viable.
The ANSOFF Matrix is a well-known marketing model that will help demonstrate just how risky this can be. You want adaption rather than revolution in your business.,
Step 3: Knowledge is power
If we said, go do this tomorrow – how confident and comfortable would you be doing that? Do you have the knowledge and skills to do it?
The answer is likely to be no.
Most SME business owners are not trained in how to be a business owner and all the different roles/functions they need to fulfil. You are an expert in your chosen field of expertise, whether that be accountancy, law, construction, health etc but probably not everything else that comes with running, managing and growing a business, especially in an economic environment like this one.
To ensure you master the above and properly prepare for a recession – now is the perfect time to ensure you are fully clued up and have the training and development behind you to succeed.
The quickest and most cost-effective way to do this would be to look at appointing a small business coach to provide advice and guidance on how to be a success and what gaps need to be filled.
This can include training and guidance on:
- How to research your marketing and review different pricing models
- How to present your values
- Understanding true product or service margins – because giving discounts to customers is not always the answer!
- Determining which of your offerings is actually viable and will bring you the most money
- Reviewing cash flow cycles
- Assisting you with your marketing strategy and execution
- Assessing sales systems – are you using the most efficient and cost-effective tools?
- Review your conversion rates and current sales processes
- Identify how you stand out from competitors and how this can be improved
- Review team efficiency and current systems used to measure this
- Identify and enable companies to become more competitive in a challenging setting
And more!
How UK Growth Coach can help your SME prepare for a recession
As demonstrated above, a local business coach who is focused on providing training and guidance, and can bring a wealth of experience to SMEs, would be a worthwhile investment to ensure your business survives and thrives during a recession.
At UK Growth Coach, based in West Sussex, we are focussed on equipping and educating business owners with the right advice and guidance to make better decisions for themselves and their businesses, to take the required actions and make change happen.
To find out more information about us and what we can offer, please click here.
To take action now and prepare for a recession, please call +44 (0)1444 440500, or email me, Tim Rylatt at tim@growthcoach.co.uk. We look forward to working with you and seeing your business succeed!
