Five steps to become recession-proof: Economic gloom doesn’t have to spell doom for UK SMEs

Research shows mid-sized companies alone have grown revenues by a third over the last five years, employing more than nine million people and generating revenues of £1.4tn.

SMEs are more innovative, earlier adopters of new technology and hungrier than large established multinationals. This has enabled them to grow in excess of GDP since the recession and explains why so many politicians are clambering over each other to be seen as the cheerleaders of SMEs (and to take credit for the hard work of the entrepreneurs).

We expect the next economic slump to accelerate this shift in the UK economy to more mid-sized and smaller businesses and away from large companies. Here’s why, and here’s how your business can get fit ahead of the next downturn.

(1) Innovate to thrive

In troubled times if someone can help you reduce your costs and/or improve your revenue through better service and/or technology you will listen in a way you may not when times are good.

This enables the innovators to get a foot in the door and to demonstrate their value-add to their customers. It will also help you to win new clients, especially in an economic environment such as a recession where your particular market’s growth may be stagnant or even shrinking.

Even better if you can totally transform a B2B or B2C business process or service – i.e. become a disruptor, to thrive in any economic environment. Think how Amazon is transforming the way we shop for IT Services, books, music, and now even groceries, following its latest link-up with Morrisons.

Fourth, a former ECI company, developed a better way for restaurants to manage payroll, inventory and menu planning systems. It’s now the world leader in its space.

(2) Constantly improve your offering

Have you noticed how Volkswagen regularly updates its best-selling Golf model with incremental improvements? This keeps the model fresh and innovative. SMEs should similarly aim to continue improving the customer offering.

It sounds obvious but talk regularly with your clients for feedback. how should you change what you’re doing? What works well, what not so well? It is important to remember that long-lasting relationships are forged in hard times.

Linked to this point, review your client list. SMEs can often rely on a few large customers – stress test your business model to see how you would cope if you lost one or two major accounts. It may be time to spend some time and effort landing some new clients and, if possible, in a new sector.

Read more on achieving business growth:

• The seven-year journey – from startup to PLC
• The rise and fall: Britain’s ten booming and ten blundering business sectors
• Why we turned down $100m for our business
• When will the next recession be?

(3) Don’t re-invent the wheel

Outsource important but non-core systems and services. This can reduce your fixed costs and boost efficiency. Recent technological changes have given SMEs a comparative advantage.

Why spend a fortune in time and money building and maintaining your own IT system? The shift to cloud computing has given SMEs access to world class technology on demand without the huge capex historically associated and offers a cost base that can scale up or down.

Tech-enabled services to SMEs notably in IT, accounting and legal services (leveraging off the above) allow SMEs to outsource services that are non-core.

For instance, there’s an avalanche of health & safety and employment laws and regulations that can burden SMEs. This year alone we’ll see the introduction of National Minimum Wage Regulations, pensions auto-enrolment – this list goes on.

Small firms cannot always afford to hire their own consultants to help digest this red tape, but research by Citation, a former ECI portfolio company, shows that less than one in ten of the UK’s 1.3m SMEs outsource such functions but 550,000 more are thinking about doing so.

(4) Be smart about where you spend your money 

Outsourcing certainly helps to reduce fixed costs. But don’t seek to slash costs indiscriminately or you might end up hurting your business. It is important to continue investing in your business (e.g. in marketing and sales, especially if you are fighting harder to keep your clients and win new ones).

Find new ways to engage with your target audience and leverage high impact platforms, for example are you regularly updating your social media profile on the platforms your customers use? How many B2B businesses use LinkedIn for more than just recruitment? You can reach CTOs, CFOs, CEOs of companies in your target sector, size, geography etc for a few hundred pounds.

(5) Take advantage of social changes

The “millennial” generation has embraced flexible working arrangements again offering a more scaleable work force to meet your business needs. We have also seen the rise of working mums looking to work from home and avoid commuting.

Remote working and hot desking can also reduce your office costs. Importantly, millennials are increasingly looking for this work flexibility, so make this part of your recruitment strategy.

On the topic of firms being flexible, be aware of the rise of co-working and the future of the workplace in Britain.

Richard Chapman is head of business services at private equity firm ECI Partners

Image: Shutterstock

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