An economic crisis is gripping the UK. After the battering many businesses suffered during the COVID-19 pandemic, they are now enduring another battle for survival.
So, as an entrepreneur and business leader, what can you do to ensure your company survives and is positioned for success when the crisis abates?
UK Economic Crisis Causes
As the world emerged from the COVID lockdowns, many businesses hoped they could start to recover. Sadly, the long-term financial impact of the pandemic made this challenging.
And then it got worse.
I’m not going to try and explain every detail of how we got where we are now, but rocketing energy prices, rising inflation, and the woeful economic strategy of short-lived Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng.
Analysts have pointed to the post-pandemic hangover, Brexit, and the Russian invasion of Ukraine as causal factors. Expert opinion is divided over the role each of these played. There is little division in opinion over the damage the Truss/Kwarteng economic policy did.
Where is the UK Now?
The UK has been teetering on the brink of recession for several months. Chancellor Jeremy Hunt (person number four to hold the role in less than a year) claimed the country would avoid recession in 2023 in his Budget speech in March.
Let’s hope so.
However, what we have not avoided is a UK economic crisis.
The costs of living and doing business have soared. Inflation hit 11.1% in October and suffered a surprise increase in February (apparently in part due to food shortages).
The Bank of England has tried to combat inflation by raising the base rate 11 times in a row up to March. This has increased the cost of borrowing and led to crippling loan and mortgage repayments for many.
Now we are witnessing a banking crisis, just 15 years after the turmoil that brought the global economy to its knees. Silicon Valley Bank and Signature Bank New York both failed in the US, and Credit Suisse came close until UBS stepped in.
And that was just Q1 2023.
UK Economic Crisis: What Can You Do?
So, as a business leader, what can you do to survive the UK economic crisis?
First, we need to identify the problems we face. There are two types of problems: absolute and relative.
Most business issues are relative, a dip affecting a specific sector. It means you may be clawing for survival while other businesses outside your industry carry on as normal.
But we are in an absolute phase. That is when everyone, to some extent, is affected.
The traditional response is to keep doing what we do, but at reduced levels. Cut costs, spend less, and hope to retain custom.
We look to make savings, calling on suppliers, staff, and producers to reduce costs because we’re ‘all in it together’.
However, when we move to the recovery phase, we’ll discover it is much more ‘us and them’. When we try to restore prices, we’ll face much greater resistance than when we cut them. Competition will become fiercer. The battle for supremacy will become intense.
Relationships
Business is, often, about relationships. We take time to nurture our bond with suppliers, workers, and customers.
But the UK economic crisis is going to challenge those connections. Everyone wants more at a time when you want to give less.
In a crisis, many business relationships become purely transactional: about price, delivery, and quantity. It is tough to build a lasting relationship when it is all about cost, so long-term relationship building becomes a casualty of the crisis.
As recovery begins, and it gets more competitive, this problem will intensify as finding the best deal trumps everything else.
Shielding Yourself
As you cannot rely on existing relationships surviving, based on the explanation above, you need to take action to shield your business. Many of these actions will also put you in pole position to emerge leaner and more competitive when the recovery comes.
Firstly, play defence.
Prepare yourself for where your finances might take a hit by taking a detailed look at your customers:
- Divide them into those who can’t pay and those who can, but won’t.
- Split them into transactional (only interested in the price) and relationship (will show you some loyalty) customers.
- Give an honest ranking of how likely your customers are to survive the UK economic crisis.
Knowing where each customer stands, and whether they will make it, allows you to concentrate your resources on those who will support you through this crisis.
It sounds cruel, but why waste your limited time and money supporting customers whose businesses are likely to fail or will ditch you as soon as a better offer comes along?
And if someone can pay, but avoids it, don’t be afraid to take legal action. They have set the rules, so you have every right to play by them.
You also have to be brutally honest about your own team:
- Who is contributing?
- Are there unnecessary overlaps?
- Where would a cut not impact productivity?
- Can fixed staffing costs be reduced by outsourcing roles?
If you can cut staff overheads, it is your responsibility to do so. There’s no upside to letting the whole team lose their jobs because you can’t make tough decisions.
Secondly, go on the offensive.
Take a good hard look at your competitors. Which are at risk of failure? Position yourself so that when they do go under, you are the first choice for their customers and clients.
It sounds harsh, but this is about survival. You want to cover your overheads and maintain some form of margin, albeit reduced. Bringing in new customers, even if they are transactional relationships that won’t last, generates turnover for your business.
If a competitor fails, be the first to offer its customers a good deal and shore up your own survival.
If you do a good job, a transactional customer may become a relationship customer who will stick with you into recovery.
Take the opportunity to plug skill and resource gaps in your team. Talking about recruiting during an economic downturn sounds counterintuitive, but now is an ideal time.
People are losing their jobs, some very highly skilled and experienced, and their salary expectations are way below what they would typically be. Smart upskilling of your team will cost, but less than in good times. Plus, the right hire can help you maintain your turnover and position for growth when the recovery comes.
UK Economic Crisis: Be Realistic
There’s no pleasant way of saying this, but you need to make the survival of your business during this UK economic crisis the priority.
The ideas of shedding staff, abandoning clients whose business model is weak, taking legal action against customers, and aggressively pursuing the customers of failing competitors may not sit comfortably with you. They may conflict with your personal values.
But in this financial situation, the rules have changed. And your approach needs to change with them.
The thought of abandoning your principles may upset you. But the thought of abandoning your colleagues, your business, those who rely on it, and your professional dreams should upset you more.
Many businesses are in survival mode right now, and there is little room for compassion.
The “Do Nothing” Option
If you decide to do nothing, and conduct business as usual, you may survive this UK economic crisis.
I doubt it.
But, if you do, your business will be weaker, scarred by the battle, and in no place to optimise recovery opportunities. Act now and you can emerge stronger, leaner, and more competitive than ever.
