For many households in the UK, the months ahead are going to be financially very challenging as the cost of living is set to rise at an alarming rate. At the time of writing, energy bills are soaring and fuel is over £1.70 per litre. Households are feeling the squeeze and there is no doubt this will also have a big impact on small businesses, the self-employed and enterprises that work on tight margins.
Maintaining your cash flow in these difficult times is important. That can mean cutting back in certain areas to protect what you have, renegotiating contracts with service providers and getting financial assistance either through government-backed loans or accessing the Government furlough scheme.
It could also be useful working with a tax expert to ensure that you are maximising your finances and not paying too much income tax or VAT to HMRC.
During these challenging times, it’s essential to try and bring your existing customers on board as much as possible and invest in building a strong relationship with them.
Many people, of course, will be tightening their belts but there’s certainly room to explore how you provide extra services or products that they will want to engage with.
Here we share ways to ensure your small business survives tough economic times.
What is the Competition Doing?
Coronavirus isn’t just affecting your business. Your competitors are also struggling with the recession and changing restrictions on what they can do. It’s useful to look at not just how they are performing but the strategies they are employing to keep their small business running.
Look at ways in which you can offer something your competitor currently doesn’t have and try and win their customers.
What Does Your Small Business Do Best?
Now is the time to look at your core competencies and focus on these. They are likely to be the aspects of your current business offering that will carry you through the recession and into a post-coronavirus world.
Before lockdown, you may have been introducing new services or products and they might not yet be fully embedded. Pick what is still working for your business and focus on these.
There may well be new services that you can introduce but look at them in great detail before you commit as it could drain resources rather than deliver the profits you are searching for.
Re-evaluate but Maintain Your Marketing
Small businesses often see marketing as an optional expense that they can cut back during a recession. The truth is exactly the opposite. You need marketing to bring in new customers and maintain your bottom line.
Just because we’re in a recession caused by coronavirus doesn’t mean everyone has stopped buying or hiring services. Some homeowners, for example, might see this as the best time to have some building work done because there is more competition in the industry and perhaps lower prices.
If your budget is limited then focus on marketing activities that have a decent ROI and don’t cost much.
- Reach out to customers on social media and engage with them. Look at how you can support them with your expertise during coronavirus and don’t just keep pushing products.
- Use approaches such as email which are cheap and simple to put together and, still in today’s modern digital world, have a pretty good ROI.
- Build your brand by engaging with local services that are coronavirus related, whether that’s a food bank or supporting nearby initiatives. It shows you care and may convince potential customers to support you too.
The Challenge of Cash Flow
A recession means one thing to small business – reduced profit margins. Keeping cash flow going is a huge challenge for many during the coronavirus pandemic. If your cash flow completely disappears, it could well be the death knell for your business.
But what can you do? While it’s difficult, there are several strategies you can put in place:
- Look at your current spending and try to find areas where you can cut back to increase the amount of ready cash that you have at any one time. Yes, it’s a bit like throwing out stuff so that a ship stays afloat but it’s necessary. If you don’t need it to survive, think about getting rid of it for the moment.
- Another option is to look at which areas of your business you can automate with a small investment and save money in the long-term. Particularly for office-based businesses, there are a lot of software alternatives out there.
- Just like your small business, suppliers and other third parties you are dealing with are going to be struggling. There’s hardly a sector in the UK that hasn’t been affected during coronavirus. That shouldn’t stop you going back to them and looking to negotiate reduced terms. They may well be prepared to offer better conditions if they are sure they are going to hang onto your business.
- If your business needs it, access the financial help that is available at the moment. You may not want to take out a loan and it’s going to be a judgement call whether you do or not but the government are currently offering their backing. If your company does fail due to the coronavirus, you won’t be saddled with a huge debt. Remember though if you do manage to get through the recession you’ll have to pay it back.
Maximise Your Tax Efficiency
Finally, all businesses, whether a self-employed sole trader or a limited company, need to maximise their tax efficiency. Paying the right amount of tax ensures that you can potentially maintain your cash flow and keep your business going.
Not all small business owners are experienced at this and many often pay too much tax.
It’s critical at this time of recession to work with an income tax or VAT specialist who will ensure that you optimise your tax payments and, potentially, have more money in the bank.
In summary, there is no doubt there will be tough times ahead for all business, but by reviewing your current set up now and preparing for the future, it may be the difference between success or failure.