How will the downturn affect my business?
There have been reports of the downturn having an effect, whether bad or good, on almost every sector – from manufacturing to baked beans. Unfortunately, the toxic combination of a relatively high inflation rate and a fairly high interest rate mean small businesses are set to be some of the worst hit. Here are some of the main areas where small firms are feeling the squeeze.
Access to finance
Steve Everhard, associate director within commercial and strategic solutions at accountancy firm Grant Thornton, says this is one of the major areas entrepreneurs are feeling the pinch.
With inflation on the rise and consumer confidence at a record low, banks are tightening their belts, just as business’ need for funding is on the rise. According to a survey by Cambridge University, the average level of funding required by small businesses has soared from £82,000 in 2004 to £470,000 in 2007.
This means businesses which may have been granted funding during easier times will find it more difficult now. “If your business plan is about taking on some massive corporation with a great innovation, you’re probably going to struggle,” says Everhard.
Costs
A survey by insurance company More Than Business has found that businesses saw their annual costs rise by almost 10% during the second quarter of 2008 – almost twice the rate of inflation. The worst culprit for this was fuel, so make sure you economise wherever possible.
According to a survey by Orange, 43% of businesses are now facing higher costs, with the manufacturing industry hit hardest by the increases, after the price of raw materials rose by nearly 12% between 2007-8.
Late payment
Companies with credit problems mean businesses are finding it more and more difficult to get paid on time – according to a survey by Bacs Payment Schemes, almost a third of businesses say they have been adversely affected by late payment during the downturn.
In fact, a survey by Barclays Business found the average small business is owed about £20,000, and with margins becoming increasingly tighter, many small firms are being forced out of business.
The Forum for Private Business (FPB) has lobbied the government to create more awareness of the problems associated with late payment. Until then, use credit agencies to review your clients’ records before extending credit.
Check out our guides to securing finance and cashflow for more advice on beating the downturn.