What are the SME challenges in 2016 and how to face them?

SME challenges represented by Sports woman scaling fence

What are the SME challenges in 2016 and how to face them?

If we only focused on what was said in the UK media, it would be easy to assume that 2016 is going to be full SME challenges. However, with a clear head and good planning, anything can be weathered. What are the SME challenges for 2o16 and how can UK businesses face them? Our Risk Director, Tim Marshall has some sound advice.

Rising to the challenge

The predicted downturn in the Global economy, already seen in reduced growth rates in China and severely stressed commodity prices, could have a detrimental impact on the UK.

Despite interventions such as quantitative easing to stimulate spending and growth, the UK recovery seems fragile; interest rates and inflation remain at rock bottom, and the Government is still concerned about the long term detrimental impact on the economy of deflation.

Add into the mix the current economic and political issues within the Eurozone (our biggest trading partner) and it would seem that the trading environment within which an SME is expected to operate is far from ideal.

However, there are plenty of reasons for hope. Regardless of the market dynamics there are always examples of businesses performing well in challenging circumstances. And there are many lessons to be learnt through the experience.

Preparing for uncertain times

Despite having no direct control over the macroeconomic headwinds it faces, an SME has the ability to decide how it wants to trade within its environment, and there are some fundamental steps that can be taken to maximise opportunity and minimise risk.

Establish a well thought-out set of goals 

These provide focus, form the basis for robust implementation plans, and also help the SME to consider what it would do if trading conditions deteriorate.  This alone puts the SME in a better position than those businesses who have not gone through a similar process

Have appropriate access to the right knowledge and skills

A business is the sum of the people within it, and its performance directly relies on them.  The better the management team, the more depth the goals and implementation plans will have; which in turn increases the chances of their success.  For many SME’s it is not appropriate to build an infrastructure in-house, but thanks to online marketplaces and the availability of professional consultancy and advisory services,  it’s now easier than ever to find the right skills on an allocated-time basis

Diversify concentration risk

Over-reliance on any one customer, supplier, financier, or staff member puts the SME in a very vulnerable position, particularly when the economic conditions place the bargaining power with the other party. Don’t make failure easy by providing a single point for it. An SME should consider how to protect themselves by appropriate diversification in key areas.

Manage fixed costs

High levels of fixed costs can be a real threat if volumes start to fall.  When the economic climate means trading could vary significantly, investing in fixed costs is risky – using variable costs that can be switched on/off at short notice provides the ability to adjust quickly, even if it is not the lowest cost option in the short term

Retain profit in the business  

The more of a capital cushion the SME has the better positioned it is to withstand trading downturns.  This might not be the most tax-efficient route, but it is a safer one. Monitoring cash flow is more important than ever – “Cash is King” is a well-worn expression, but still an entirely appropriate one.

Considering these aspects, should enhance the chances of a small or medium sized business being successful regardless of the SME challenges that may transpire in 2016. Making sure that the financial side of the business is appropriately catered for, that the most appropriate products are being accessed, and that the business has an acceptable spread of finance partners can make the difference between success or failure.