Finding optimism in the face of uncertainty

As inflation pushes up costs, firms have to keep pricing under constant review, all this at a time when customers are looking for ways to decrease their own spending.  

So, the announcement the UK had officially tipped into recession following two consecutive quarters of economic contraction in the last six months of 2023 were more likely to be greeted with a weary shrug than outright alarm.  

Graham Lamont, chief executive of Cumbrian chartered accountants, tax and business advisers Lamont Pridmore, says it is making little difference to businesses, which have been facing challenges around cash flow and interest rates for a long time. 

He says high interest rates are continuing to put businesses under pressure as they pay back loans, including those who borrowed money via government schemes such as Bounce Back Loans and the Coronavirus Business Interruption Loan Scheme. 

“Where it was a viable business two or three years ago, now it takes a bit of cash to service the debt if you’ve got substantial borrowings,” he says.  

Barry Leahey MBE, president of Playdale Playgrounds, in Haverthwaite, agrees that businesses have already had a “rehearsal” for a recession due to the challenges of Brexit and the pandemic.  

"Be it a technical recession or not, it should be up to an SME leader to take those alarm bells as an opportunity to do a few things,” he says. 

This should include reassessing the business offering, improving communication with customers, reviewing cash flow and cost control.  

He says business leaders also need to look at where they can make gains by embracing efficiency, including through the use of technology and AI.  

Barry says Playdale has been using tools like ChatGPT and Google Gemini to produce marketing materials for lead generation, as well as to manipulate and analyse data. 

“How do you diversify, what different products can you make, can you use this time for new product development? 

“If you’re quieter then you can upskill your team and do some training. 

"We are in a recession, but this is a time when maybe SMEs can adopt more AI principles to make them more robust and come out of it stronger and embrace that innovation.” 

Finally, he says businesses need to “communicate with optimism”. 

"Positivity leads to positivity. Negativity leads to negativity. I don't think you can put a positive spin on a recession but I think you need a proactive and positive attitude of how you deal with it. 

“If you are blase about it you are going to come out of it in a bad way, if you’re not then you can use it as a time to reassess. 

"If you are not changing as quickly as your competition, you're already going backwards. If you don’t change you are only adding to the gloom of the economy. If you are proactive your positivity should spread to other businesses and you will stimulate the economy.” 

Matthew Hutton, accounting senior manager at Armstrong Watson accountants and business advisers, based in Kendal, also advocates an optimistic approach. 

"I think it's important for people to realise that the recession is only a measure of what's past,” says Matt. 

“Three months to December is never a reflection of the future, or even the present that we're in now. So although it can be scary, the reality is that tagging it with that official term doesn't necessarily need to change anything from a business point of view.” 

He says at a time of uncertainty, the best approach for businesses is to focus on what they can control. 

"It is important to focus on your core offering as a business, whether that's a product or a service and making that stand out and as good as it possibly can be, so that people want to spend money with your business rather than someone else,” he says.  

Regular financial forecasting and business planning is also essential, combined with “stress testing” to try and understand how your business may perform during difficult periods.  

"As part of that, cash flow is absolutely key and the cash flow forecast is a vital tool when you're putting that business plan together to make sure that your business has got the resources to cope with any difficult periods moving forward,” says Matthew.  

"From a positive standpoint, if people are looking to invest and actually grow the business during difficult times, it's equally as important to know exactly what that looks like, and what the requirements are from a customer perspective and whether there's any gaps there that need filling.” 

With corporate insolvency levels rising 73 per cent above pre-pandemic levels in February, Matt says Armstrong Watson’s in-house restructuring and insolvency team have been busy and do not anticipate this will change.  

However, he says businesses need to avoid seeking advice on insolvency as a last resort and speak to professionals as early as possible if they believe they are going to hit tough times. 

"The earlier businesses are willing to have these conversations, the more helpful we can be around how we can do things differently to improve the situation for you before you even have to think about going down the route of insolvency. It's all about seeking proactive advice at the earliest possible point.”