How to protect your business in a recession
Recent reports in the Irish media suggest that a ‘big bang’ in terms of insolvencies may be on the horizon for Irish businesses. This expected increase in insolvencies is likely to impact the SME sector most, with many family and owner-managed businesses bearing the brunt.
A number of factors are increasing the cost pressures on family businesses. These include supply chain pressures, increased energy costs, rising inflation and interest rates, and wage inflation. Collectively, this translates to reduced profits and threatens a business’s viability. In addition to these direct challenges, the cost of living crisis is also impacting household income and customer spending, and therefore many family businesses will be struggling to maintain sales in the current climate.
The government provided some support to businesses in the recent Budget by way of the Temporary Business Energy Support Scheme, yet additional support measures may be needed to assist family and owner-managed businesses as well as households to lessen the impact of issues being faced.
To weather the storm, direct action may also be needed by business owners. In the current environment, it would seem appropriate for businesses to consider implementing a cost reduction strategy to better utilise the limited resources available. Cutting costs often requires tough decisions and delicate trade-offs as you don’t want to impact your ability to grow the business.
Here are a number of areas to consider to manage costs.
- Reduce property costs by facilitating more remote working by employees.
- Review premises requirements – sharing office space, downsizing or dual use spaces.
- Review supply chains. Explore if goods can be sourced at lower cost.
- Invest in modern technology to increase efficiency.
- Alternatively, consider hiring serviceable refurbished equipment.
- Review staffing requirements and invest in your employees to help with staff retention.
- Consider whether your marketing channels are effective and up to date.
- Chase unpaid invoices and reduce debtor days.
- Request discounts from suppliers for early payment.
- Use and maintain budgets and financial forecasts.
A business owner will have their own ideas on how costs can be reduced, typically with a reduction of staff being the last alternative. A combination of the above measures may help to reduce business costs and may help with financial planning for the short and longer term, to ensure that a business can act appropriately and react to growth opportunities.
We have a team of experienced business advisers and insolvency practitioners who work with businesses to advise on the best course of action, depending on your particular circumstances. You may want to talk to us if you are dealing with the following:
- cash flow difficulties
- struggling with payments to creditors
- inability to keep up with payment arrangements with Revenue or repay pandemic borrowing
- increases to material and labour costs (adversely affecting profit margins)
Our team can help on a range of things:
- talking through the difficulties and helping you find a workable solution
- discussing informal arrangements and restructuring to resolve difficulties
- negotiating with creditors
- introduction of external funding partners or stakeholders
- assisting with proposals to pay creditors over an agreed period of time
Please get in touch with Declan Hanly or Aiden Murphy from our insolvency and corporate recrovery team, or your usual Crowe contact, to find out more.
