Small business and tax blog

Is the UK heading for an economic recession? That now seems likely, especially in view of the Chancellor’s recent comments. Small businesses should consider preparing for this now, so they are ready to weather any economic storm. Here is our list of steps to consider.

Cash flow is usually key to the survival and success of a small business, and in a recession this is likely to get stretched. Make sure you have enough money available to see you through a slow period. Keep any spare money in a short term deposit account, rather than in a long-term savings product. If you feel that it would be useful to have increased finance facilities, talk to your bank about it now rather than later when it may be much more urgent.

Look at your range of products or services. Could you diversify into any areas less vulnerable to a recession? Could you add any low-price options?

Be wary of making any long term commitments, such as taking on new staff or a new 3-year vehicle lease.

See whether any debtors need chasing up sooner rather than later. A higher number of businesses are going to fail during a recession, and you want to make sure you are paid before any of your debtors run into difficulties.

Scale back the credit terms that you offer to new and existing customers. You may be very keen to take on the new business, but a customer that does not pay is no use to you at all. This is more likely during a recession.

Be cautious of offering your staff perks, such as medical insurance, which would be difficult to cancel further down the line.

Check that your level of marketing expenditure is not too ambitious for a slowing market. We are not suggesting that you stop marketing and promotion altogether, but it may be appropriate to scale back from the level of spending when the economy was more buoyant and there was more potential to win new customers.

Look at the content and tone of your advertising. People may become more reluctant to spend money, so move emphasis from your premium lines to your value lines.

Watch your competitors, and be ready to act if one of them runs into difficulties. There may be a lot of business you can pick up if one of them fails and you can act quickly. Google Alerts can be a good way of monitoring developments in your market.

For each of your key suppliers, have an alternative on standby in case they withdraw from your market or otherwise change their business model.

Review all your overheads, for any that you could start to scale back. Often you will have to wait several months before you can make a positive difference to your monthly cash flow.

Review the level of stock that you are holding, especially of your premium lines, to check that it is still appropriate for a business slowdown. You may be able to identify some lines of stock that would be easier to sell off now rather than in 6 months time.

Make your business lighter and more adaptable. Use freelance subcontractors instead of employees. Use pay per click internet advertising, where you can change the message and spend on a weekly basis, instead of a one-year fixed commitment to a printed directory.

Work out the level of sales that you need each month for the business to just make a profit, and then track your sales on a weekly basis. This will help you to anticipate cash flow difficulties in the coming months, and also alert you to whether you need to take any immediate steps to cut back your expenses.