The impact of current market conditions on SMEs, and what you can do about it
The current market conditions lately are not ideal, compounded by the recent effects of the covid-19 pandemic. It is evident from the data and the businesses we speak to, that the SME sector is being significantly affected and causing concern among many business owners.
In this blog, we offer practical advice and tips for what you can do to help manage and mitigate these challenges’ impact on your business, and not falter at this time.
How is the current economic climate of rising prices, reduced consumer spending and recruitment challenges particularly affecting SMEs?
Rising Prices
With products and services on the rise, it is becoming increasingly more expensive to keep a business running – profit margins are being noticeably affected.
Our advice is to be sure to know what your margins were, and how they have changed. This gives you a goal of where you want them to be in the near future. It is a requirement to understand what products or services are still profitable and what may be compromised.
In this scenario, it would be beneficial to track the prices early with your suppliers, or shop around more often than you would, so that you can get the best value for money.
It would also be wise to see what price plans or price fixes (likely short-term ones, such as a 6-month rolling plan for example) you can set up with your trustworthy suppliers so you know where you stand month-on-month with these expenses.
Reduced Consumer Spending
With everyday necessities on the rise, such as petrol, gas, electricity and food, consumers may be far more hesitant to spend their money on other products and services.
There is a need to identify what customers are buying now, why, and where customers are applying more discretion.
Responding to customers’ wishes and needs will help your business if it needs an adaptation or shift in products, service structure, or pricing to ensure your services align with consumers’ views on what is essential, discretionary etc.
Recruitment Challenges
Right now, employment in the UK is at one of its highest levels for a long time, and this means that having a compelling offer, an enjoyable/engaging workplace, and a good management approach are all essential for attracting and retaining talent.
Effective recruitment strategies are also important to finding successful candidates. You must have a strong understanding of how to make your company, and the role on offer, stand out in a sea of opportunity.
Consider things such as a compelling company vision, inspiring purpose statement, and sharing team values upfront. As with all other forms of marketing, you need to answer the question “why you?”
Whilst employment is currently high, it is also likely that the winds of change are coming. Reduced consumer spending will lead to reduced profits and more competition amongst businesses, and if a recession arrives (as is expected!) it is likely that wage rates will stall or decline, and employment levels may also fall.
Demonstrating an ability to weather the storm, and provide security to staff is important too, as the last thing you want is them leaving suddenly.
How does this economic climate affect the ability of an SME to grow?
Rising prices often cause cashflow challenges for businesses where an upfront cost is incurred, or where debtor management is not well enough systemised or managed – it also narrows margins. Businesses who are reluctant to pass on costs, or to negotiate hard with suppliers, may well find that their profit levels diminish. This will impact the business’s ability to invest in its team, services and operation, so not only does that affect the ability to grow but also potentially puts the current level of operation at risk.
Reduced consumer spending means lower turnover for many businesses. If costs are not reduced in line, this can lead to loss-making scenarios for businesses that cannot adapt their lead flow and conversion levels to overcome the challenge. Ineffective marketing and sales are often the cause here, so if you haven’t already, now is the time to review and ensure the efficiency of your marketing and sales. That doesn’t necessarily mean cost-cutting, but rather focusing spend and efforts on what delivers the most value for the business at this time.
Recruitment challenges can lead to a temporary need to downsize or stall growth plans if operational deliverability is not possible. It can also lead to unrealistic wage requests where a business simply says “we cannot afford the staff” or “this activity is no longer viable due to operational costs.” Salaries are not everything, so even if you don’t have a concern right now about retaining your team, look into the wider benefits you can offer. It is amazing how valuable they are to your team, with a small price tag for you as the employer.
What should business owners consider when handling the challenges of rising costs and reduced consumer spending?
Our top recommendation is to ensure the tight management of costs. This means understanding the profit of different products and job types: what they were and what they are now. This should be reviewed regularly, given the fast-changing environment we are now in.
In addition, ensure you have clarity on where costs are impacting profitability – is it labour, materials, or something else?
How well you know your cost, past, present and future, is going to be the key to weathering this storm and enabling business growth even at this time. Also, don’t be too shy to pass on the costs. Ultimately, if you keep the sales price the same, but costs rise, it is profit that suffers.
If you need to adapt in order to maintain your margins, then look at the value proposition or the service/product mix. For example, you could adapt marketing or sales strategies and techniques to make your products or services more desirable to the ideal customer. Reassure them that your business is the best for what they are looking for – to keep those margins as they were, show that you are providing the best value possible.
Besides salaries, what could SMEs be doing to attract and retain talent in their teams?
Induction and training
It is essential that every business has a solid induction process and training for successful candidates. The induction process must inspire the potential candidate so that they know that it is the right job for them. Training gets new staff up to speed within the business, and perform to the level they need to be quickly, and it shows that you care about their career.
Team engagement
There are many ways this can be done, such as surveys, team building activities, pro-active management 1-2-1s, and showing that an employee’s actions have a clear connection to the purpose of the company.
Do remember an appreciative ‘thank you’ can go a long way.
Employee Assistance Programmes (EAP) and benefits
EAPs can be very helpful if you have staff that are feeling stressed.
There are also many benefits that employees can utilise which are important to highlight, such as pensions, health packages, employee benefit schemes, commission bonuses and much more. There are some very cost-effective schemes available, which are low-cost to implement but financially very valuable to employees. Communicating these benefits, ensuring a good uptake in them and explaining the value of them, are all important things to consider.
Employee development
Be sure to always keep up to date with your employees. Check in on them and see how they are doing and understand where they want to go – help them paint a picture of their future. What steps do they need to take in order to get to that future vision? Spell it out for them so they and you can see their career path, and what support and leadership you can provide.
Moving forward
We are all aware of the many challenges that need to be faced, they are things we face ourselves.
However, there are ways to mitigate them!
The quicker these actions are taken, the more effective the outcome will be for a business – don’t delay in adapting to the current market conditions. Here’s a summary of the actions we’d recommend:
- Know your margins inside and out, and research how to improve them
- Manage your costs with suppliers – find better options if they are available
- Adapt your products/services and show that you offer the best value
- Tighten up your recruitment strategies and be sure to offer new candidates a job that they will enjoy
- Always engage with your employees and make sure they know when they are doing a great job and where training will be beneficial.
Are you looking for help to grow your business?
If the answer is yes, then a business coach may be the solution for you.
With vast experience in the field, we know exactly where a business is doing well, and where it needs improvements to help push it forward to further success.
Contact us for a complimentary business review session with one of our business coaches or find out more about our Growth Programme.
