Risk is a part of life when you’re running a business, but you’d be forgiven for thinking that the task has become harder in recent years. The advance of digital business models and the integration of international markets now mean that when things change, they change fast and no one is immune.
Here we’ll go over some of the key challenges facing UK businesses and how you can prepare.
1. Planning For Economic Uncertainty
The economic environment in the UK remains unpredictable for SMEs, especially with a new government freshly-installed and looking to make their mark on the country.
The combination of high inflation, elevated interest rates, and changeable market conditions has created a difficult environment for business operations.
- Recent surveys indicate that 31% of business owners fear potential closure by the end of 2024 due to financial pressures and declining demand.
- Rising utility costs and cash flow challenges are major issues, with 46% of businesses reporting a drop in demand for their products or services as a chief cause of reduced profitability.
When it comes to weathering economic downturns and unexpected disruptions, cash remains key. However, research reveals that only 50% of SMEs have sufficient cash to cover their expenses for three months without revenue. Remaining resilient requires a tight focus on costs and cash reserves to sustain operations during periods of financial strain.
This is why regular cash flow forecasting is such an important capability – when conditions are fluctuating, owners need the right visibility to adapt. By consistently reviewing financial projections, SMEs can anticipate shortfalls and adjust their strategies accordingly. A proactive approach enables businesses to make informed decisions about spending, investments, and potential cost-cutting measures. Effective cash flow management includes:
- Monitoring Receivables and Payables: Ensuring timely collection of receivables and efficient payment of obligations helps maintain liquidity.
- Scenario Planning: Developing multiple financial scenarios based on different economic conditions allows businesses to prepare for various outcomes.
- Cost Control: Identifying and minimising unnecessary expenses can preserve cash and improve financial stability.
2. The Era of Cyber Risk
With more and more activity moving online in the professional and personal world, cybersecurity is a critical concern for SMEs.
As businesses increasingly rely on online operations, the risks associated with cyber threats have grown massively. Government data from 2024 shows that 50% of businesses and around a third of charities reported experiencing some form of cybersecurity breach or attack in the past year, putting more pressure on businesses to update their systems.
- Phishing: Phishing attacks are among the most prevalent forms of cybercrime in the UK, affecting 96% of businesses that suffered an attack. These attacks often involve fraudulent emails that appear to come from trusted sources, tricking recipients into divulging sensitive information or clicking on malicious links.
- Data Breaches: The rise in data breaches is alarming, with a 17% increase in incidents reported last year. Unauthorised access to confidential data can have severe consequences, from financial loss to reputational damage.
- Ransomware and Malware: While less common, ransomware attacks have a devastating impact. Cybercriminals lock access to essential files or systems and demand a ransom to restore access. Additionally, malware, which includes various malicious software, can infiltrate systems to steal, encrypt, or delete data.
For the majority of cyber threats, businesses can protect themselves by adapting fairly basic ‘cyber-hygiene’ protocols.
- Strong Passwords and Two-Factor Authentication: Implementing strong, unique passwords and two-factor authentication (2FA) can significantly reduce the risk of unauthorised access.
- Regular Software Updates: Keeping software and systems up-to-date is essential to patch vulnerabilities and protect against new threats.
- Employee Training: Educating employees on recognizing phishing attempts and other cyber threats is crucial. A single click on a malicious link can compromise the entire network.
- Access Control: Limiting access to sensitive information based on individual roles helps minimise the risk of data breaches. Monitoring sign-in activities can detect potential security threats early on.
- Data Hygiene: Minimising the amount of data stored and ensuring it is necessary for business operations can reduce the impact of potential breaches. Regularly reviewing and securely deleting outdated information is also important.
You can find out more about how to protect your business in our recent article on cybersecurity.
3. Hiring Challenges
The UK labour market has seen significant challenges in recent years, making it increasingly difficult for SMEs to attract and retain talent. A recent survey by Indeed revealed that 74% of UK businesses feel hiring has become harder over the past five years.
While the difficulties are largely on the macro-level, reflecting changing economic conditions and work-trends, owners do still have choices when it comes to mitigating the impact on their business.
- Maximise Existing Skills: Instead of only looking for new talent, consider investing in the development of current employees. Upskilling not only fills existing skill gaps but also enhances employee satisfaction and retention. This approach helps businesses maintain a competitive edge by ensuring that their workforce is continually evolving to meet new challenges, based on existing expertise and experience.
- Tactical Automation: Automation is always a controversial topic, but when approached in the right way, it can significantly reduce the burden of repetitive, non-value-add tasks. By implementing automation technologies for routine functions such as data entry and routine customer service, businesses can free up valuable resources and improve overall efficiency. This allows existing staff to focus on more strategic and high-impact activities, thereby enhancing productivity without the need for additional hires.
- Outsourcing Specialist Skills: For roles requiring specific expertise, outsourcing can be an effective solution. Partnering with external specialists allows SMEs to access high-quality skills on a flexible basis, without the long-term commitment of hiring full-time employees.
- Investing In Remote Work Infrastructure: By building a robust remote work infrastructure, SMEs can tap into a broader talent pool beyond their immediate geographic area. This flexibility not only helps overcome local hiring challenges but also attracts top talent who value work-life balance and flexibility.
4. Evolving Compliance
HR and payroll rules seldom stay still, and 2024 has seen several significant changes updates to employment and business regulations that SMEs need to navigate, including:
- The National Living Wage (NLW) increase includes a 9.8% rise from the previous year’s budget, affecting not only standard employees but also apprentices. This means re-evaluating their pay structures to ensure compliance, particularly for employees who age into new pay brackets.
- Employers must now calculate holiday pay based on average hours worked per week in the previous pay period, aiming for fairer treatment and more transparency for all employees.
- Employees can now request flexible working from their first day of employment, and employers are required to consult with employees before refusing such requests. This also ties into the hiring environment mentioned earlier and the growing demand for work-life balance and flexible options to attract and retain talent.
This is a particular challenge for businesses without full time HR teams, presenting a mountain of new rules for owners to get their heads around. As in other areas, this can be one of the areas where external business support can help with tasks such as reviewing pay arrangements and holiday processes to ensure complete compliance. For time-strapped teams, payroll software can help streamline compliance efforts by automatically updating policy changes and ensuring that all employee records are accurately maintained properly.
5. Staying Agile
In the end, there is no one strategy for dealing with risk – the ability to adapt and manage changes in the market is itself an increasingly important skill in your business. The more you take a proactive approach to managing change, the more you can do so on your terms.
- Conducting regular business reviews, ideally on a quarterly basis, helps you to assess performance and make timely adjustments. For instance, if certain products or services are not performing as expected, a quarterly review can provide the insights needed to pivot strategies or explore new markets.
- Your customers will always be your most important asset, so strong marketing and service efforts need to be an ongoing focus if you want to ensure customer loyalty and attract new clients. That could be implementing customer feedback mechanisms to ensure you’re doing a good job, or engaging with your audience through various channels to keep your finger on the pulse.
- Your business needs to be flexible and willing to adjust offerings to meet new consumer preferences. This could involve expanding e-commerce capabilities, enhancing digital marketing efforts, or offering new products and services that align with emerging trends.
Stay One Step Ahead With Haines Watts
At Haines Watts, our advisors work with thousands of businesses across a range of industries to help them build sustainable strategies that deliver long term value, no matter what the market throws at them.
Whether you need assistance with business improvement, tax planning, or navigating regulatory changes, we are here to support you every step of the way. To find out how we can help you reduce risk and move forward with confidence, get in touch with our team today.
