Updated on 28th May 2020
Coronavirus has had a significant impact on businesses throughout the UK and globally. The UK’s lockdown restrictions have caused disruption to many business’ operations and staff lifestyles, while further challenges have been faced by supply chains and finance teams, who are trying to forecast as best they can and create short-term plans.
Aside from the impact felt by individual businesses though, coronavirus has had wider implications for the economy as a whole. Not only have consumer needs been changed by people adjusting to lockdown lifestyles, but e-commerce has grown, the sale of non-essential goods has diminished temporarily, and people’s attitudes throughout the country have been changed, for better or for worse, by the pandemic.
So, with many companies struggling with trade- are we heading for a recession?
In the UK, a recession is technically defined as two consecutive quarters of negative economic growth. But let’s unpack that a little.
When businesses are struggling to make a consistent profit, lenders, such as banks, may be more cautious about who they lend to, as they take on more risk. If businesses are facing hard times, then unemployment rates are likely rising. And, if businesses can’t borrow the funds they need to survive, the overall effect is that productivity and economic growth slows.
When we’re producing less goods and services, and lenders’ appetites are small (meaning less credit is available to businesses), our trade suffers both on a local and international level. Because of that, a weaker economy and smaller profits for businesses could mean that the cost of living increases, or that the rate of inflation increases as the Bank of England prints more money to keep the economy afloat.
These conditions described above are, in part, what a recession involves for the UK. Recession brings about more challenges to business owners, who need to be even more effective to find success.
You may have noticed how we described borrowing and lending as being key factors in the recession formula. That should make clear, then, why the government has rolled out a set of emergency loans designed to help business owners; which include the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).
These emergency loans are designed to help keep businesses afloat in the short-term, while strict lockdown measures are in place. But, will the economy recover quickly after lockdown measures are lifted? Will businesses be able to meet the needs of customers, and will those needs have changed?
In case the answer to the questions is no, and a recession does hit the UK in the 2020/2021 financial year, we’ve compiled a list of handy tips that could help you and your small business withstand a recession.
Of course, before we begin, we’d like to mention that our tips are general ideas and methods to consider - you should always seek financial advice before making serious changes to your business. Some ideas are as follows:
When money is tight, it’s great to have access to an emergency fund that you’ve deliberately put aside to make sure you can respond to serious challenges facing your business.
Cash flow is a huge challenge for businesses, and a well-known business strategy is to put aside two month’s worth of working capital to make sure that you’re always able to buy the products you need from your suppliers, or pay your employees.
If you have outstanding debt, and you’re accruing interest on that debt in a period of time where your business’ productive output is noticeably low (not necessarily through any fault of your own), you’re probably going to be repaying that debt for longer than you’d like to- and losing out on money.
It may be worth considering paying off your high-interest debts if you’re anticipating a period of economic instability. Could a recession render your business unable to produce your normal level of goods/services? Could you find yourself having to let staff go to keep the business afloat?
If so, paying these debts off in advance and reducing the amount of interest you’re paying out to a lender in the long-term may be a good way of protecting your business’ finances.
We’ve already outlined some of the challenges a business owner may face because of a recession. The challenges we’ve outlined are external; they’re brought about by a changing economy and you may not be able to control them. While you can prepare for these changes and put a plan together, which may be a good idea, there’s also some preparation you can do to prepare yourself for the challenges ahead.
For example, build a strong mindset by spending some time on yourself. Improve your personal organisational skills, take care of your health and wellbeing, and perhaps even take on a regular meditation practice to help keep you calm and grounded and ready to face the challenges brought about by a recession.
It goes without saying that in times of financial uncertainty, it probably isn’t wise to be splashing out non-essential purchases that you can do without.
An obvious example of this could be upgrading your computer technology to the latest, top-spec. machines when you already have adequate IT systems in place. It may be worth reviewing your upcoming expenses and creating a priority list based on what you consider to be essential to the success of your business.
In difficult times, it can’t hurt your chances of success to invest some time in becoming a great business leader. You could look to read the most essential and cutting-edge books in your discipline, take webinars (we’ve noticed that plenty of companies are running free webinars online during lockdown), and network via social media platforms such as LinkedIn.
There’s also your brand’s reputation to consider. Reinforcing and growing your knowledge around brand-building techniques to ensure that your internal and external communications reflect your business in the best possible light could really give you a competitive edge. Here’s an example of the kind of public relations and marketing theory you could look to learn more about:
Expectations – Reality = Dissonance.
This simple formula describes how the public perceive your brand. During the coronavirus period, their expectations of your brand may be that you’ll be sensitive to your customer’s situation, update them on how your business is affected, and use a supportive tone of voice in your communications (e.g. social media posts). If the reality they experience is that you don’t mention the pandemic at all and pretend things are simply business as usual, it could create dissonance amongst your audience where they sense that their expectations have not been met.
If you invest some time in further developing your expertise around niches in your industry, you can at least hold your head high, knowing that you’ve done your best to position yourself for success. While many of the challenges brought about by recession are out of your control, you can always take personal development into your own hands.
One of the best-known effects of a recession on consumers is that they’re (we’re) generally hesitant to spend money. We ask ourselves more questions about what we really need, and who we’re buying from- knowing that we need to keep a close eye on our personal finances.
For business owners, then, taking some time to reach out to your customers and connect with them; building their trust in your brand, could impact their buying decisions and put your business at the forefront of their mind when they’re looking to make a purchase. Sending out a personalised email or dropping them a quick phone call (if you have the staffing capacity to do so) are great options for achieving this goal.
Recession often means that many businesses unfortunately go out of business. However, as a business owner, you have a duty to your team and stakeholders to find opportunities for success, and one of the ways you can do this is by analysing your competitor behaviours and trends within market to keep you one step ahead of the game.
If you notice that your competitors are struggling; why are they struggling? If they’re going out of business, what actions are you taking to connect to their customer base and encourage them to consider your products? These considerations could help you to find success and grow your business, increasing your market share even at a time where markets themselves are shrinking.
The Bank of England has warned that the UK is likely to be heading for a sharp recession. Unfortunately, making long-term forecasts and business decisions can be difficult in this fast-moving climate - but you could explore how relevant the steps we’ve outlined today are to your business, and think about implementing them to help protect you and your business.
We have also compiled some more general tips that could help you develop your strategy in response to coronavirus.