Steven Edwards, Partner, Recovery Solutions
Recent headlines report that the UK is already in recession. It’s predicted that inflation will reach 14% towards the end of 2022. There are increasing cost pressures on family businesses due to a number of factors. These include supply chain pressures, increased energy costs, rising interest rates, a weak pound and wage inflation. Collectively, this translates to reduced profits and threats to business viability. The cost of living crisis generally is impacting household income and spending and therefore many family businesses.
In the UK we entered periods of recession in 1990, 2008 and 2020. The 2020 recession was caused by the COVID-19 pandemic. The 2008 recession was categorised as a Banking Crisis and the 1990 recession as rising inflation and interest rates.
Many family and owner-manager business owners who have lived through the more recent recessions have been described as ‘financial crisis veterans’. However, the upcoming predicted recession seems to have similarities to that experienced in 1990/91. That recession seemed to hit households and family businesses in the UK the hardest. Inflation in 1990 hit 9.2% with average inflation since then remaining at low levels. On the other hand, since 2008, interest rates have been historically low. It seems clear that the business environment is changing meaning few business owners will have first-hand experience of operating through these challenges.
The government may yet provide additional support measures to assist family and owner-managed businesses and households to lessen the extent of this recession. But, direct action will also be needed by business owners. To weather the storm, it would seem appropriate for businesses to consider implementing a cost reduction strategy to effectively utilise available resources. Cutting costs often requires tough decisions and trade-offs (without affecting an ability to grow). Here are a number of areas to consider to manage costs.
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 or all 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 licensed insolvency practitioners who work with businesses to advise on the best course of action, depending on your business’s circumstances. You may want to talk to us if you are dealing with the following:
We can help on a range of things:
Please get in touch with Steven Edwards or Vince Green who are licensed insolvency practitioners, or your usual Crowe contact.
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