Part II – Tackling the economic headwinds of energy and fuel costs, inflation and raised borrowing costs
This is Part II of a series of four blogs examining how SME’s can not only plan for the difficulties facing them in 2023, but potentially capitalise on some of the unique opportunities surrounding them. This series is about setting a course for growth in these times and in so doing getting ahead of the competition with a flying start to 2023. In Part I of the blog series last week the creativity of the SME owner in leading with emotional intelligence and empathy was explored. (Getting an edge in 2023 as an SME – Part I)
SME’s are the backbone of economic recovery in the UK as a whole and there is no doubt that current and future strategy will seek to support such huge hubs of enterprise. In the OECD nations SME’s make up almost 99 percent of all firms and over 70 percent of all jobs. SME’s also contribute more than 50 percent of Gross Domestic Product in high-income countries around the world.
Trading Market Opportunities
Here in the UK, inflation has now topped 10% as we look toward 2023. There is increasing strain in the labour market putting upward pressure on wages, which in itself is made worse by a distinct lack of skilled labour post Brexit. This all means that there is increased pressure on an SME’s working capital. Approaching the 2023 new year, SME owners will have to significantly balance the need to retain and attract skilled staff. This will require incentivisation whilst ensuring sufficient working capital to maintain and to grow their business operations.
For those SME’s relying on trade with the EU the Institute of Directors have found that when asking its members what would improve their business operations, overwhelmingly, they want a better and new working relationship with the EU, their biggest and nearest market. The current political backdrop is that Government is looking for a solution to trading with Europe and the relaxation of immigration rules for skilled labour. The SME owner will have to examine trade press and Government announcements for changes in trade rules with the EU and also for national and local funding opportunities. In the SME market in 2023 then owners must also track changing markets locally and abroad that may become more conducive to their own individual SME type of business.
Sustainability as profitability and future proofing
Additionally, SMEs are increasingly environmentally aware and a survey by ‘takepayments.com’ found that 39% of business owners and leaders are passionate about making their business more sustainable. Having a sharp focus on understanding the social responsibility aspect of the SME’s individual enterprise and making this a priority for 2023 will create an edge in business. Additionally, consumers are increasingly more aware that they wish to buy from or only do business with organisations that have environmentally friendly policies. Adopting green energy and conservation policies has also been shown to be an investment that will increase customer base and ultimately place an SME in the vanguard of green friendly trading whilst potentially also becoming a part of cutting edge service provision. Legislation is already tightening on fuel sources, energy emissions and tax incentives requiring green friendly SME’s.
Preparing for 2023 to push sustainability trading makes both sound financial and ethical sense. In several areas such as the development of batteries, the UK has the potential to demonstrate business leadership across the globe. Considering how to show green credentials from the smallest beginnings such as paperless systems through to broader company energy policies will place an SME in a stronger position.
Supply chain review
Local SME supply chains
The supply chain difficulties for SME’s that were exacerbated during Brexit and Covid have also been added to by problems created by the conflict in Ukraine. With increased energy and fuel prices added to the delays, SME’s are experiencing costly and severe delays in manufacturing and shipping. However, to limit the impact of this crisis, UK SME’s can look to examine how they increase their resilience by looking at local and more accessible supply chain partners. This approach can create business marketing opportunities in the local trading arena by clearly demonstrating ‘local investing’. The supply chain can also be widened beyond the local to examine which markets may have more resilient suppliers in them and therefore be less subject to the damage of short supply affecting their trading position and their reliability for customers.
SME’s can examine their use of automation and also the status of their trading partners in terms of the use of less dependent manual technical processes. This also applies to service providers who may want to shift to greater digitilisation and online service provision and to enhance their presence through digital marketing tools. SME’s may also want to look at timely data sharing in order to sharpen the focus of collaboration with current and potential suppliers and therefore also predict potential supply chain risks impacting on business operations before they occur.
Supply chain data sharing and standards
Improved data sharing within their current networks and to potential markets, not only allows SME’s to improve efficiency but also increases transparency and trust. This sharing process will also encourage suppliers to share and explain all the materials and procedures that go into making and delivering their products. This information will help the SME to be confident about the supply chain, about the ethics of the suppliers on a range of ethical working practices.
SME’s also need to be more vigilant in 2023 to make sure that their suppliers have the correct accreditations and certifications. This will mean that those suppliers are bound to honour their professional associations standards which will provide better guarantees on supply and on quality. Such accreditations include ISO standards and inspection results, other examples include Ofsted inspections or CQC reviews in the education or the care sector.
SME’s countering inflationary pressure through overheads reviews
Staffing approaches
The difficulties already outlined here about labour shortages and supply chain problems taken together with rising price inflation mean that SME’s have to look at cost efficiency within their operation whilst providing quality services.
Selective efficiency savings are important as there can be some unintended consequences of ill thought through and panic motivated savings. For example, cutting staffing numbers at a time when the trained labour market is stretched could result in quality and business falling rapidly due to shoddy standards. This can mean complete organisational reputational loss that lasts long beyond the pressures of a business experiencing austerity. Then in trying to get more staff afterwards, lower quality candidates requiring more training may be all that is on offer. This means that much more flexible working approaches to the current workforce may yield greater efficiencies.
Dropping the pay of personnel is also a risky process for the SME. It may result in resignations and a lower paid workforce may also lead to exploitation of individuals by unscrupulous black market staff providers. Many of my clients are working very hard to build relationships with education, colleges and training providers. This is enabling an ability to create connections with higher quality recruits who are more likely to share the values of the SME. This creates career pathways also for the individuals, and as new recruits are in training there can be some modest salary savings to be achieved. Networking with such potential sources of new people into your SME is vital.
Other expenditure reviews
SME’s can look at all overheads and compare them to the absolute necessity of them in creating their quality business product or service. This might include undertaking reviews of office space or potentially transferring aspects of the business to less expensive locations. Reviewing hybrid working policies may allow SME’s to save on overhead costs such as energy, whilst boosting employee productivity and wellbeing. PWC report that 57% of global leaders said that they saw an improvement in their workforce performance following the introduction of hybrid working policies. Changed working policies such as shortened weeks but extended hours such as 3 day and 4 day weeks may also offer mutually beneficial solutions for some SME’s and their teams.
In Part III of this series looks at the advantages of business planning for both the SME itself and for the ways to ensure that the SME’s greatest asset, its people, are retained and that future business growth also enjoys the ability to recruit the best new people in 2023.
