Business Matters – Issue 32

Create a robust business model |  Model cash flows  |  Make it ‘quality’ growth  |  Manage your risks  |  Stress test your strategy

Power-up your leadership team | Focus on your employee well-being

We hope you like the new look and format of Business Matters – please spare 1 minute to let us know what you think. Take survey >

Resilience redefined: 7 ways to strengthen your business

It’s natural to focus on growing your business footprint and profits, but don’t neglect boosting your resilience, as this will help you capitalise on new opportunities once the current economic volatility settles.

2023 was a bumpy year for businesses, with the UK experiencing a brush with recession and seeing soaring interest and inflation rates. Amid the turbulent conditions, entrepreneurs are seeking ways to help them withstand the challenges.

Although cash flow is king, resilience is about so much more than putting prices up. Indeed, the government recently revealed that 52% of trading businesses were not considering raising prices in November 2023 – the highest proportion to report this for over a year.1

What’s more, resilience doesn’t just help during periods of adversity. Agile companies are well placed to scale or expand into new markets, drive more robust marketing strategies or exploit any new gaps in the market.

So, while business owners are hopeful for a brighter future, don’t be afraid to pivot your plans if you need to. Here, we break down seven ways to improve business resilience.

  1. Create a robust business model

Create a comprehensive business strategy that covers every facet of your company, encompassing the ‘what’, the ‘why’ and the ‘when’.

Review your current plan and make sure it defines your strategic goals – including where you want to take the business over the next 12 and 36 months. This involves conducting a SWOT analysis to assess your Strengths, Weaknesses, Opportunities and Threats. Furthermore, examine the factors driving your revenue, identify your core competencies and pinpoint areas where collaborating with external partners could aid in achieving these objectives.

Ask yourself: have your products and services achieved market fit, and can you make and supply them in time and for a reasonable cost long term? Have you priced them in a way that ensures consistent profits? Do you rely heavily on one product, service, customer segment or supplier? Could you improve your organisation’s resilience to adverse events by diversifying?

  1. Model cash flows

The next stage is to create business-intelligence and key-performance-indicator dashboards to gain insights from your financial reports and determine the appropriate actions to take if needed. Running out of cash is one of the main reasons businesses fail. This could be caused by growing too quickly, selling too much, running out of cash before payments arrive or spending working capital on projects such as new product initiatives.

To counter this, set sustainable growth targets. Use rolling 13-month cash-flow forecasts, updated at least monthly, to help ensure you never run out. Track exactly what return you’re expecting and how you will achieve it. Agreeing those parameters in advance allows you to ensure you don’t overextend yourself.

Try to be realistic about what new projects you can start in the coming year and over the next three years, then build them into your business plan and strategy. If a better opportunity arises down the line, you can adapt and reallocate budgets. Proactively plan and manage product lifecycles through phases of introduction, ramping up, maturity, decline and upgrade or replacement.

  1. Make it ‘quality’ growth

Scaling your business is another crucial way to become resilient, but remember that in modern business, it’s no longer about growth at all costs – it’s about efficient, good-quality growth.

Although profitability is undoubtedly a measure of success, companies must improve the elements that make up corporate ‘quality’ and long-term sustainability.

While healthy levels of cash flow are important, so are agility, innovation, intellectual property and staff retention. ‘Quality’ is also about building long-term value in a structured way through better systems and processes, and mixing revenue streams to avoid over-reliance on one type of customer or product.

And don’t forget environmental, social and governance (ESG) factors. For example, are you working towards carbon neutrality and reducing waste? Are you improving your social impact through community and charity projects? Does your business have strong governance processes?

  1. Manage your risks

Creating a risk register can help you understand what potential hazards the business faces. For example, what would happen if your premises burned down? Or a senior team member leaves or becomes seriously ill? What about if your business is forced to stop trading? Record the probability of these risks, the potential impact and how to prevent, mitigate, respond and recover.

A key part of resilience for SMEs is safeguarding against disruptions caused by the loss of a pivotal team member. Having the right insurance in place will help you create a framework and process, should this happen.

You should also include the positive, manageable risks you need to take to achieve your goals. For example, regularly reviewing your software systems is more important than ever in getting a competitive edge. Issue 27 of Business Matters discusses why it’s crucial to set aside the time – and funds – to leverage new technology in your business strategy.

  1. Stress test your strategy

Evaluate the resilience of your model and strategy by stress-testing them against the worst-case situations outlined in your risk register. Assess how well your disaster recovery and business continuity plans would handle these scenarios. For instance, consider the impact of losing your largest client. What would happen if sales dropped 60% – or increased 300%? What would that mean for the business’s processes, for your technology and for your staff?

You cannot necessarily achieve robust resilience overnight. But you can work towards it in steps as you grow by developing risk-management capabilities, stress testing and what-if scenarios.

  1. Power-up your leadership team

To expand your business to the next level, your strategic priorities will change, which might mean bringing new skills and capabilities into the business to achieve your evolving goals.

Companies frequently hit ceilings as they pass revenue milestones, which requires leaders to reassess the skills needed to scale up. This might mean upskilling or restructuring a management team.

You may also want to think about the diversity of your board and whether it reflects a range of different voices, experiences, backgrounds and skills. This can also support your company values and your reputation as a fair and inclusive workplace.

  1. Focus on your employee well-being

Businesses are paying closer attention to their employees’ well-being – and reaping the rewards of doing so. Increased investment in well-being has been linked to greater productivity and staff retention.

We’ve recently talked about employee financial health checks. At Wellesley, we can provide your employees with one-to-one personal finance advice, which will give them confidence and help them feel in control of their money. If you’re interested in organising quarterly financial health checks for your employees with a Wellesley adviser, contact us today!

How specialist financial advice and protection can help

Despite the current challenges, the outlook for SMEs is far from gloomy. By planning ahead and improving your business resilience, you can not only adapt to changing circumstances and pivot swiftly where necessary, but also capitalise on new opportunities.

Financial planning can help! As well as ensuring you’re putting the right insurance in place, your adviser can assist with modelling to help you maintain cash flow and tax planning to ensure you are making the most of the reliefs and allowances available to your business and are using efficient capital structures.

Want to find out more? Talk to us today!

Sources:

1 ONS, Business insights and impact on the UK economy: 19 October 2023.