Help your business combat the impact of inflation and recession

According to the Bank of England’s predictions, the UK could shrink in the final three months of 2022 and into 2023, triggering the longest recession since the 2008 financial crisis.

The downbeat forecasts combined with the steep rise of inflation over the last year will fill some SME owners and managers with dread. But there are ways to mitigate the economic impact on your business.

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We believe in empowering our clients and encouraging them to focus on what is within their control to support their businesses. In a recession, it will be particularly important for SMEs to be agile and react quickly to the rapidly changing conditions.

Here are three key areas to think about:

Scenario planning

Look at the internal KPIs and financial metrics and ask whether you can already spot any trends in the information you have to hand.

Ask the question: What actions could the management team take if this trend continues?

Start discussing recession plans with key stakeholders as early as possible. In talking to key suppliers, customers and partners about their plans, you can begin to understand the potential impact the recession will have on their business and yours.

This may highlight the higher risk partners, so you can create a ‘backup’ plan to re-negotiate or seek alternative suppliers for the business to continue trading with little impact.

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Outsourcing and premises

Consider outsourcing to cut costs. This way, you can reduce overheads and think carefully about the space you use (like using office space or warehouses more efficiently).

For example, consider lowering your stock levels. This is only likely to be feasible if your supply chain is made more efficient and allows you to hold less stock.

Review costs

Try to identify what factors you cannot change (such as the cost of fuel) and the factors you can change (internal processes and suppliers that you can switch from), and focus your efforts on the latter.

Ask yourself whether you change anything internally (i.e. how you run the business) or whether you need to pass this cost onto the customer.

If you do need to pass costs on to customers, think carefully about how to communicate that price rise to customers, especially in a business-to-business (B2B) environment.

Business-to-consumer (B2C) would be a bit different, as you can observe how competitors price their products.

If you’re not already doing so, creating a cash flow forecast will help in this situation, as it will give you a view of the cash in your business in the short to medium term. 

Relevant resources

• Should you reduce your marketing spend in a recession?

• An essential guide to cash flow management

• Grow your company’s turnover through less profitable work