Is the media obsessed with the state of the economy and the possibility of a recession?
You don’t have to search hard for an article predicting one, that’s for sure.
So what is the reality?
If you search for news of a pending recession on Google you’ll find articles predicted a recession every single month since the start of 2020 and before.
I’m fascinated by the way in which society and business respond to the news we receive and the impact this has on business decisions.
Perception of risk can make one person make an entirely different decision to another in exactly the same circumstance.
So should we really concern ourselves about the possibility of a recession?
When considering the subject of this article, I wanted to gather feedback from our clients and form a general opinion of their business confidence based on those conversations as well as consider the governmental national statistics.
Firstly let’s look at the OECD or Organisation for Economic Co-operation and Development, which is an international organisation, part of whose activity is to measure and track consumer and business confidence.
Essentially they survey individuals and businesses and access market data to suggest how confident each group is.
Tracking back the data for the UK, I noticed that we are below the average of the G7 for both measures.
This is a factor that is partly used by economists to predict future economic trends and things like a recession.
None of this of course is a guarantee and certainly has me a bit foxed when I think how much reliance we can really place on such vast economic modelling when thinking about how we can strategise as business owners.
Speaking to business owners
Naturally, as accountants that obsess about our clients, we speak with a number on a daily basis so there are plenty of opportunities to gauge their opinions.
In truth however it was really difficult to pick a general trend as measuring confidence is such a subjective thing.
However some interesting tangible notes I’ve made are:
- As is always the case some industries are booming and have seen an uptick in performance in 2022 and the first 3 quarters of 2023. Of course, there are stories of caution over a slowdown in sales/orders in recent months from some, but we often find it is just a blip when we revisit them later in their financial year.
- Almost without exception, the owners I spoke to who watch the news were frustrated by the doom and gloom of the economic press.
- Very few have what they consider to be sufficient plans for funding retirement beyond the possible value of their business and their house, with many favouring paying off their mortgage rather than saving within a pension, not wanting to tie up the cash.
All business owners are certainly aware and affected to varying degrees by the following;
- The rapid increase in interest rates by the Bank of England are beginning to have an impact on lending costs on those businesses that have borrowing sensitive to switches in rates.
- Supply chain costs have risen significantly with lower corresponding price increases made to their customers in many cases.
- Businesses are cautious to recruit with few fully understanding or utilising the beneficial apprenticeship scheme.
- The cost-of-living crisis has put significant upward pressure on wage demands from their teams.
- Few businesses with cash reserves have sought to settle costly debt or find high interest-bearing options for their money despite the rates for businesses rising in recent months.
- A low rate on unemployment has led to a shortage of labour in most sectors making recruitment difficult (whether replacing team members tempted away or in order to satisfy growth requirements). Clients have either accepted the situation or chosen to recruit and train themselves.
- From a tax perspective, those businesses trading as Limited companies have seen an increase in Corporation Tax from 1 April by up to 6% and are beginning to plan for higher bills in 2023/24.
- A freeze on personal income tax thresholds continues to fiscally drag business owners into higher tax burdens requiring higher than inflation increases in drawings to keep place with increased living costs. This seems to be having a particular impact on businesses whose owners have maximised earnings just within a particular tax bracket.
What does this mean?
Short of the limited relief that comes from knowing you are not alone in your struggle, what use is this information to you?
The simply answer is none unless you harness the challenge and make change happen in your business.
Maybe more valuable to you would be to know what those clients that continue to maintain successful growing businesses year on year are doing.
Actions to make change happen
These business owners appreciate the value on focus on goals, planning and disciplined implementation and share the following:
- They don’t watch or scroll through general news.
- They spend time on personal development and learning.
- They all have some form of simple stretch goals for 90 days and a year in line with a vision for the business.
- They are planning their business finances, budgeting growth project and using these forecasts to negotiate appropriate finance and/or deposit interest at the best rates available.
- They delegate and build strong support teams around them.
- They maintain and protect spending or marketing and business development in times of financial pressure.
- Their businesses are often accessing apprenticeships for untrained staff and planning recruitment in line with their growth expectations, not waiting until they are overstretched before taking on their next hire.
- They have already probably given commensurate pay rises to their team and implemented policies and a strong culture within their business.
- They have already forecast the impact of the increase in the Corporation Tax is going to have on their business and addressed this with price rises with customers.
- They think long term and see opportunity in economic turmoil, not fear.
- They have regular significant pension contributions built into their base acceptable level of earnings and are making these contributions on a monthly basis with annual top ups.
- No matter where they get to, they always seek out advice and often have an independent advisor or coach to help them.
Assistance from Friend & Grant
We’ve been working to help clients as we always have and this article is simply a list of ways we are serving our clients to help at this time.
We are providing the following support:
- Targeted business advice in the form of either light touch profit and cashflow improvement meetings or more involved financial forecasting services designed to give owners control of their business finances.
- Introductions to expert third party commercial finance brokers where needed.
- Guidance on state-of-the-art financial accounting software and carrying out project work on implementing these, including specialist one to one training for our clients teams.
- Practical goal-oriented business planning services drawing into focus the ambitions and goals of the business owner and ongoing support in reaching those goals in the form of financial performance monitoring and accountability support services to keep our clients on track with commitments they make.
- Always seeking to help no matter what the issue by continuing to be curious about your challenges and seeking to offer advice wherever we can add value in our interactions.
- Providing various tax mitigation services in the form of detailed pre-year end planning advice, corporate restructuring projects and routinely fine-tuning advice on all the relevant reliefs available.
- Planning support services, being a critical support partner by challenging our clients to forward plan and make positive change at every opportunity.
- Guaranteeing compliance is done quickly and reaches its destination on time.
- Providing advanced notice of tax liabilities giving our clients clarity and time to provision for these payments.
- Being available by providing multiple familiar points of contact.
- Inclusive ad-hoc business support as part of our fee agreements encouraging clients to seek help, guidance and advice as early as possible.
- Giving certainty over charges by committing to fixed price service agreements for 12 month periods.
Ready to take action?
If this article has inspired you to take action and you want to talk to us about how we could help you, please reach out and we’ll be happy to arrange a coffee, call or video chat with Andrew Grant.
The content in this blog is correct as of 12th October 2023. See terms and conditions.