The UK is on the brink of entering a recession, and the purpose of this article is to give an insight on how to prepare your business for a recession. It is good to stay informed of the current situation and how the economic status of companies is changing. In this article, we share advice on what actions business owners in the UK should take. Read more in this article and share it with colleagues or friends that may also need this information.
What Is Causing the Upcoming Recession in the UK?
The predicted recession is estimated to be the worst economic downfall in modern history. It affects employees, government agencies, and businesses both in the UK and the whole developed world. At the moment, several factors have an effect on the poor economic situation, and in order to prepare for the future, it is good to know exactly what causes the financial crisis we are facing. These include:
- High debt levels
If you are struggling with debt, there is a lot of help available. Get the debt help that you need today.
Covid-19 has brought unpredicted difficulties for businesses and UK citizens. The unemployment rate has risen drastically being 4.1% in July 2020 and is estimated to continue its growth peaking in 2021 with 13.2% of people being out of work. Businesses have gone under at a rate not foreseen by anyone. However, the government has come through for UK companies and is providing support, so the companies have ample time to react to the current situation.
The GDP in the UK has fallen fast due to the pandemic, and in March 2020 the drop was already 6.9%. UK has been hit the hardest when compared to other European countries and the USA. The second wave of the Coronavirus is estimated to cause a drop in GDP even further. The comparison between the UK and other economic areas can be seen in the following figure. It shows the estimations in GDP change after the second peak of the pandemic and from the graph it can be clearly seen that the UK continues to suffer most from the crisis. This is a good reason for all the UK businesses to rethink their operations and finances and start to prepare for the upcoming recession.
Figures obtained from here
How to Prepare for the Upcoming Recession?
Covid-19 and the upcoming recession in the UK are forcing businesses to figure out ways to be better prepared. It is good to take a look at the past and then start planning for the future. The recession is looming just around the corner, and businesses should start preparing right away in order to survive. Next, we have gathered some useful tips with which your business may overcome the recession with as little damage as possible.
- Learn From Past Experiences
- Avoid Debt
- Look at the Cash Flow
As history is known to repeat itself, we have also seen many recessions before. Even though the economic stress factors influenced by Covid-19 are different than the ones we have previously seen, there are many points from which we can learn. Take a look at the steps the survivors of the last recession took and follow their lead. Also, the studies based on the past recessions have told us that there are always many factors that contribute to the crisis and there is more to the crisis than the pandemic.
Many companies have some level of debt, and it is not to be said that all debt is bad. Your company may in fact benefit from investments that are financed by debt. But, as we are approaching a recession that is neither predictable nor possible to be controlled, it is better to be cautious before anything and not burden the company in excess. However, if your business is required to take loans, it is favourable if you have kept the business credit score at a good level. Business credit repair is also a great tool to get your rating up if needed. If you have been refused credit, you can read about steps to take if you’ve been refused a financial product.
It is advisable to have a little more cash reserves available that you can use if times get more challenging. Usually, receivables and other assets that you can quickly liquidate are enough. But as we approach recession, there might be a reason to cash in, as clients are also in economic turmoil and might not be able to pay their bills on time. Your company should:
- Collect receivables
- Offer credit carefully
- Use a business credit score to find out about the client’s creditworthiness
In times of economic crisis, the company should keep close reigns on the costs. Operating costs make up a significant number of business expenses, and they need to be looked at closely. Especially in 2020, the ratio of the operating costs to turnover has increased. 16% of UK businesses reported that their operating costs in fact, surpassed their turnover as can be seen from the figure below.
Figures obtained from here
Companies should examine their expenses in detail and save where it is possible. If the profitability is deemed to be greatly jeopardized, some branches might need to be cut down altogether. Other things to consider are as follows:
- Rent and facility costs
- Production costs
- Transportation costs
- Personnel costs
Companies should closely review the sales figures of their varied products. The pandemic has an effect on consumer behaviour, and some products may rise in popularity while others might vanish altogether from the markets. Take advantage of this if possible, and introduce new production lines and methods were applicable. On the other hand, it may also be a good idea to close or slow down the production of goods that show a decline in sales. Focus on what you do best or delve into some entirely new areas. What is most important at the time of economic uncertainty is to answer to the demands of the market instead of fighting for old and deep-set practices.
Customers are the most important for your business’s existence and should be treated accordingly. In times of recession, it is always harder to find new customers which means that already existing loyal partners should be revered with great respect. Treat them with something that will remind them of you and show that you are there for your clients also during hard times.
If you are able to make investments, you should also focus on increasing the customer base. Additionally, when you form a new relationship, be sure to provide seamless and trustworthy services that will be remembered. Positive feedback and recommendations to new potential customers are the best and most cost-effective advertising there is. You can learn about consumer rights to help you deliver a great service to your customers.
Be prepared for everything and immediately address all the issues that arise. Take care of yourself. A well-functioning business is managed by well-functioning owners and managers. Make sure you get enough rest and that the stress levels are tolerable. Make use of experts, delegate tasks, and look into hiring more assistance if the business issues get overwhelming. Take care of the issues that are most crucial to be able to stay afloat, including being on top of your personal credit score and improving it. This will help you get the best credit options when you need it.
- If you need to take a loan, stick to the plan
- Try to negotiate with your creditors for more time if needed
- Check what it is that is causing your business credit score to be low, and if there are incorrectly filed items, request their removal
- Contact a company that offers business credit repair services and credit counselling for help