With the global economic downturn and the lasting effects of the COVID-19 pandemic, UK businesses continue to face unprecedented challenges. It is essential to strengthen your position within this economic climate and the ones that will follow.
With the help of Howard Woolf, Partner at Gerald Edelman, we will explore practical ways that businesses can adapt and respond to the economic downturn. Offering expert advice on strategies businesses can start implementing to help them emerge stronger.
Howard identifies cost of living increases impacting consumer demand and employee retention as some of the main challenges. Businesses are struggling with employee retention, as there is pressure to increase salaries in a competitive job market. Finding the right balance in hybrid working can also be another major challenge when trying to retain employees.
Firm reputation is also becoming a breaking point for consumers. Prospective hires, as negative media coverage affects confidence in the company. Brand loyalty is becoming ever more aligned with ethical values. Other challenges include implementing new technology and trying to meet the heightened expectations of customers and clients. With so many challenges, it can be difficult to determine which ones to focus on first.
The supply chain’s failing, the budget’s bleeding out, and the recession’s got everyone in a tizzy. Well, don’t start pulling alarms and making rash decisions just yet; ‘Recessions and downturns form part of a normal business cycle and businesses that survive economic turbulence often do so because of good advanced planning’ says Woolf. Reacting to sprouting fires without a clear plan of action isn’t going to get you anywhere. Whilst you try to extinguish one flame, you may leave yourself susceptible to burning from another. It’s clear advanced planning that will help you determine which challenges you need to focus on first. That’s where SWOT analysis comes in.
‘SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) should be in place for all businesses and regularly reviewed. It provides a clear aerial shot of the business and focuses the mind on the areas that matter to ensure risks are mitigated and opportunities are taken’. Ask yourself what are the biggest challenges your company is facing? What means do you currently have available to help combat them?
The one thing all businesses will have an abundance of that can be used to figure out their SWOT’s is data. ‘Every business must think of itself as a tech business’ Woolf suggests. ‘Data on sales and an in-depth knowledge of your customers, understanding your product/service’s strengths. Timely and accurate accounting records. Identifying KPIs and regularly testing actuals against these enables management to make the right decisions.’ Data doesn’t lie, and it is going to be your most valuable resource when trying to set out your business’ SWOT’s, but that doesn’t mean it isn’t open to interpretation.
When analysing your company’s data, make sure to be fully aware of anything that may have caused it. When reviewing graphs and numbers, it’s easy to see a large spike and start trying to replicate that. Consider whether or not that spike is reproducible within reasonable means. A company that sells toilet paper may have seen a massive spike in sales back in 2020. But without causing another global pandemic, it’s going to be impossible to hit those same numbers. Mitigate the dips and reproduce the spikes as much as possible, but make sure you are realistic with the resources you have available.
Resource management refers to your team and its responsibilities, the tools you are using, and most importantly, the company’s cash flow.
Woolf considers cash flow as one of the most critical areas your business needs to be reviewing. He suggests you ‘review your current cash flow projections and update them regularly. Keep a close eye on accounts receivables and work to collect outstanding debts.’ Tightening up your cash flow is going to help your business evaluate its SWOT’s. It will also allow you to stop bleeding money on unused or underutilised resources, and can even boost your profits by unearthing lost or hidden money – such as unpaid invoices or circumvented terms – that your business has a rightful claim to. You should also be aware of the speed at which your cash flow is moving, and where possible, slowing it down is advisable. When it comes to cutting costs, Woolf highlights the following two areas for businesses to focus on:
Cost of Sales
Quality must never be compromised in a recession. Any cost cutting needs to be invisible to the customer. Otherwise brand loyalty will dissipate and not recover once the market improves. Identify if small tweaks in arrangements with suppliers or internal processes can lead to tangible cost savings. Or if there is scope for early settlement discounts.
A slash and burn approach often causes too much disruption to the whole operation. In the first instance look for easy trimming across as many overhead lines. Changing minor suppliers (e.g. telecoms/cleaning contractors), eliminating unneeded travel and entertainment which lack defined purpose. There is a huge offering of flexi office space rather than being tied into short term leases, so space paid for reflects current needs.
Outside of managing the cash flow directly, one of the most important resources a company needs to manage is their time, as this will have significant indirect effects on the revenue coming into the business. Effective time management enables businesses to maximise productivity, streamline operations, and make the most of limited resources. Poor time management on the other hand can result in missed opportunities, wasted resources, and decreased efficiency, all of which can have a negative impact on a business’ bottom line.
It can often be the case that spending on new tools, resources, and hires will actually lead to a stronger cash flow. The time that new technology can save through automation, and the bandwidth that is returned to experienced employees by having a new hire alleviate menial tasks will often lead to a more efficient workforce.
An economic downturn can seem like a major risk that your business needs to defend against, but the unstable environment it creates can open up opportunities as well. By reacting to the downturn and evaluating your resources, you may notice inefficiencies that were engrained into the company and needed to be changed no matter the economic condition. What’s more, the downturn will be affecting every business, not just your own. Woolf states that ‘the competition may not have the foresight or means to adapt or may be following a cost cutting strategy which impacts on quality. This presents an opportunity to win customers from competitors’.
Depending how your competitors are reacting to the downturn, this can create the perfect strike-whilst-the-iron-is-hot moment for your business to diversify its service offering and expand your customer base. Woolf gives a prime example:
However, keep in mind that service diversification will only be effective by knowing your customer and client base, and knowing exactly what it is they are looking for. This strategy requires out of the box thinking to identify new offerings which can be served with only minor tweaks to the existing infrastructure, whilst maintaining the quality and consistency of your current product/service lines.
Recruitment and Retention
Recruiting top talent has been made more difficult by continued increases to the salary structure throughout the UK, particularly within the professional services sector. Over the past year we have seen record breaking salaries get announced for newly qualified lawyers and accountants, and firms have been forced to either match these salaries or offer competitive benefit packages in order to draw the attention of applicants.
You can get an idea of where current salaries are sitting within the accountancy public practice and legal private practice sectors by viewing our 2023 salary guides. These cover the London, East, and South East of England expected salaries for both sectors, whilst offering market insight from recruitment professionals that have first hand experience negotiating salaries and understanding what firms are currently offering.
Although you could easily start offering competitive salaries to attract talent – which should be considered to a certain extent – the short term ‘pressure to “pay the going rate” when salary demands have increased significantly can put a company at risk in the medium and long term.’ For job seekers, the challenge is to make the right decision while having a range of options available, and ‘they need to consider very carefully what they ultimately want, what matters most, and what they have learnt from previous experience.’
Without careful consideration, they can quickly find themselves joining a company that hasn’t implemented the retention strategies suggested below; you’ve gotten them through the door, but they may quickly realise that it does not lead anywhere in line with their career goals and they will start looking for work elsewhere. ‘[Job seekers] need to ask the right questions and listen to the answers’ to find the best opportunity for them, and as an employer, you need to be able to answer their questions effectively. ‘Businesses need to have a clearly defined employer brand and be current, fresh and innovative in their overall offering.’
Fully understanding who your business is as an employer from the job seekers perspective is a valuable insight that will help you better showcase what it is that makes your business an attractive place to work. ‘Being agile is key‘, and being able to better highlight certain areas of the business to different interviewees is going to be fundamental in piquing their interest amongst your competition.
The current skills shortage and competitive landscape makes retaining your current employees just as important than the recruitment front. Woolf suggests that maintaining a strong cultural identity with core values, providing an appealing work-life balance, offering quality training, and promoting mental and physical well-being are all ‘key areas a business can focus on to retain employees whilst avoiding potential costly increases in wage structure which may impact on the business’ viability in the long term.’
For more guidance on how best to handle employee retention, you can watch the below video by Howard Woolf, or read Gerald Edelman’s ‘Employee retention: The key challenges and how to solve them’ report.
Having spoken about resources, recruitment, and retention, the final topic we’ll cover is reputation. It is important for businesses to take a strategic approach to strengthen their operations during an economic downturn in order to emerge stronger and more resilient in the long run. Woolf highlights the importance of investing in marketing. ‘This covers branding and messaging to gain market share but also employer branding to help attract new and retain existing clients/customers.’ Woolf goes on to add that another avenue that opens up when investing in marketing for your business is ‘more active business development initiatives possibly accessing overseas markets, servicing B2B, or simply gaining clients from competitors.’
Marketing strategies will help you build your customer and client bases by generating leads and inbound traffic, as well as creating a strong brand identity and positive reputation within your market, all of which will go toward generating more business and long-term profitability. However, be aware that when implementing reputational strategies through marketing, feigning values that your business doesn’t actively act upon opens the company up to potential risk, including the disillusion of brand loyalty within your customer base and even potential law-suits for false advertising.
The above quote by Edison sits on the homepage of the Gerald Edelman website. Every business can say that they are sustainable, inclusive, and socially responsible, but it’s only by acting on these claims and delivering a transparent result to your audience that you will benefit from reputational strengthening strategies with mitigated risk.
Green-washing for sustainability, rainbow-washing for LGBTQ+ equality, brown-washing for anti-racism and BIPoC empowerment; the term “washing” has been used to describe companies and organisations that market themselves as being supportive of a certain cause whilst not taking any substantial action to support – or taking actions that are harmful – to that cause. Even an accusation of performing some type of social corporate washing can be enough to permanently damage a business’ reputation, which in turn devalues any future marketing campaigns and can disincentivise consumers from using that business’ services, leading to loss in revenue.
Instead, taking the time to actually invest and support the causes your business claims to support not only protects the business from negative media attention, but it also solidifies your company’s culture and core values. Woolf agrees with the walk-the-walk take when it comes to corporate social responsibility, stating the following:
‘Invest in sustainability, DEI and giving back to the community: There is increasing evidence that businesses that devote time in these areas help attract higher quality talent across all functions of a company which in turn enhances growth potential. The cost is more in time rather than excessive cash investment, making it a beneficial strategy to adopt in a downturn.’
Gerald Edelman’s annual Transparency Report is a great example of a way a business can be open with their audience about what initiatives they are currently taking on, and helps to lay out exactly what it is your business is actively doing to meet the targets you have set yourself.
Economic downturns can be challenging for businesses, but they can also be an opportunity for growth and innovation. By leveraging the company infrastructure, diversifying your offering, evaluating your cash flow, and effectively managing your time, businesses can strengthen their position and even take advantage of opportunities that will lead to greater success in the future. The current economic climate in the UK has had significant impacts on both job seekers and employers, with jobseekers having more opportunities, and employers having more competition.
The war on talent has increased salary offerings, and to avoid too much financial strain it is important for businesses to consider offering better benefits packages, appealing work-life balance, quality training, and promoting physical and mental well-being in order to attract new talent whilst also retaining the valuable staff members they currently have. The core values of your business will also act as a flag for people to gather around and can be a deciding factor for many vocational and ethic-centric employees.
The reputation of your business is key in keeping talent interested and your customers happy, so investing in marketing, sustainability, charity, and your local community are important considerations when enhancing and promoting your business’ core values. Stay true to who you are and take time to evaluate your business’ current strengths and weaknesses. With all of that information to hand, consider what threats your business may currently be facing as well as what opportunities are open to you.
The economic downturn presents many challenges, but with proper planning, regular resource management, and suitable strategies, you can take advantage of the situation and emerge stronger.