FORECASTING - 28.02.2020

Navigating the economic uncertainty

The economic outlook in 2020

UK GDP growth was very modest in 2019 and, according to the Bank of England’s latest figures, is estimated to have been around 0% in Q4, dampened by weaker global growth (primarily due to the China-US trade war) and elevated Brexit-related uncertainties. The International Monetary Fund’s latest prediction is that the UK economy will grow by 1.4% in 2020 but this forecast depends on the UK and the EU averting a no-deal exit at the end of transition period. With such low growth predictions (which were made before the coronavirus outbreak) and so much economic uncertainty, it’s important to ensure your business has strategies in place to manage it.

Managing the risk

It’s challenging to prepare for the unknown but businesses have survived economic downturns before and will do so again. Companies that prepare for every eventuality are the ones that survive in the face of adversity. There are some key strategies which can help your business manage economic uncertainty.

Focus on existing customers. This is the number one strategy. Consumers aren’t spending as much due to lack of brand trust and growing apprehension about the economy. Focusing on your existing customer base during testing financial times will deepen brand loyalty and grow customer confidence.

Tip. Offer your existing key customers benefits and incentives to stay true to your brand.

Implement an adjacency strategy. An economic downturn is probably not the time to start looking into a brand new profit stream, but you also shouldn’t let your services stagnate. Together with the board, consider the viability of expanding into an area adjacent to your core products or services.

Tip. You need to ensure you have a distinct competitive advantage for an adjacency strategy to succeed such as consumers believing that the product or brand is better than those of competitors.

Forge powerful alliances. Mergers, acquisitions and alliances are all key strategies during an economic downturn. Alliances offer a great way to expand your business without investing in anything completely new during times of uncertainty.

Don’t be afraid to outsource. Outsourcing key elements of your business can save you time, money and financial anxiety. For example, could you outsource the marketing, IT or HR functions?

Reduce stock holding costs. Consider whether you can reduce the levels of stock you are holding without impacting on customer service. This will reduce the amount of cash tied up in stock and help to take the pressure off your finances.

Don’t sacrifice your marketing budget. Companies often make cuts to their marketing budgets in response to financial anxiety. But there is no time more crucial to maintain your marketing efforts and show customers that your brand is tackling the downturn and winning.

Look after your suppliers. In times of economic uncertainty, you need the support of your suppliers. Don’t be late in paying them and always thank them for a job well done. If your business gets hit with a temporary cash flow issue they will be more likely to lend you a helping hand.