A period of stagnation, characterised by minimal or no economic growth, can pose serious challenges to your business. In a recent interview with The Guardian, renowned UK economist Samuel Tombs forecasted a stagnation phase that would compel “firms to reduce workforce and investment, alongside a notable dip in residential investment.” He further noted a potential “1 per cent dip in GDP this year,” a figure that, despite seeming small, could significantly affect growing businesses.
Slowed revenue growth
An economic stagnation often results in a decline in consumer expenditure, translating to diminished sales and revenue for small enterprises. Businesses in sectors reliant on discretionary spending, such as leisure and retail, are generally the most affected, as consumers tend to tighten their belts in such periods.
It is prudent for all businesses to brace for potential hardships by possibly revisiting pricing strategies to enhance profits or by introducing enticing offers.
Cash flow hurdles
Stagnation can bring about extended payment delays from clients, adversely affecting your cash flow. It becomes crucial to manage cash flow adeptly through regular monitoring and establishing strong credit control measures to preserve liquidity.
Being proactive in ensuring timely payments from customers and accurate cash flow forecasting can be instrumental in averting cash-related predicaments. Remember, cash flow disruptions are a primary cause of business failures.
Barriers to securing finance
In a stagnation period, financial lenders tend to be more cautious, making it challenging for businesses to obtain essential funds or loans. It might become necessary to explore alternative funding avenues such as crowdfunding or grants to inject capital into your business.
Assessing your savings and assets can offer a substantial advantage when seeking loans, especially when banks are hesitant to lend. Understanding your financial standing through a thorough evaluation of your assets and surpluses is vital.
Emerging prospects
Despite the hurdles, stagnation can unveil unique opportunities. Enterprises that are flexible and can innovate, diversify their offerings, or penetrate new markets, might discover avenues to prosper even in a downturn.
Navigating through stagnation demands strategic foresight and expert consultation. By proactively managing and innovating, while understanding the potential repercussions on your business, you can lessen risks and possibly uncover new paths to growth.
