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Dealing with a downturn: How businesses can survive the Covid-19 recession

With economic activity slowing this year and local restrictions still in place in many areas of the UK, how can businesses ensure they stay in good shape?

Last updated: 14 Oct 2020 5 min read

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Official figures released on 12 August confirmed the UK had entered a recession for the first time in 11 years. The closure of shops, restaurants, hotels and schools – ordered to save lives during the height of the pandemic – pushed the economy into its first technical recession, defined as two consecutive quarters of economic decline, since 2009.

Business activity increased over the summer as shoppers gradually returned to high streets in August and continued to spend more money online. And the reopening of pubs, restaurants and non-essential shops encouraged some catch-up spending by businesses and consumers. But with the introduction of the UK government’s new three-tier system of restrictions in England, and tightening of restrictions across the UK, the stability of the economy is uncertain – despite chancellor Rishi Sunak announcing the extension of job support measures in September.

“The chancellor’s statement on employment support was a blunt recognition that not every business or job impacted by [the] pandemic can be saved and that the crisis is leading to an acceleration of structural shifts in the UK economy,” says Jason Hollands, managing director of business development and communications at wealth management firm Tilney. “The key risk to the recovery has always been the prospect of rising unemployment choking off consumer spending and fuelling a vicious cycle.”

Sunak’s expansion of the Job Support Scheme to cover firms legally required to close due to Covid-19 restrictions will go some way to alleviating the pressure – but how will the wider business community be affected by the recession?

Understand the impact on your business

An economy-wide recession has the potential to affect companies regardless of which sector they are in.

As the chancellor recognises, job losses are a key threat at the moment: as more people find themselves without an income, consumer spending will inevitably fall and many firms are likely to see customer numbers and average spend drop, with a knock-on effect on profits and cash flow. In this environment, even those who keep their jobs may be more inclined to save rather than splurge – especially when it comes to non-essential spending.

“One of the most important points is to retain staff wherever possible: it takes a long time to develop a trustworthy team, and if you can’t retain them, you will have to start building the team back up once you get to the other side of the recession”Earl Yardley, director, Industrial Vision Systems

Companies that sell to other businesses could face a similar outlook: many firms might look to cut back on investment and non-core expenditure as they try to address their own lack of cash flow, while some businesses in your supply chain might default on payments should they face struggles themselves. As your competitors look to cut prices in response to a more competitively priced marketplace, you might also decide to reduce your own rates, which could further impact your profit margin.

Recessions are, however, an accepted factor in the business cycle – and those that are able to weather the storm will emerge stronger for it.

Learn from previous recessions

The last time the UK was in recession was in the wake of the global financial crisis, in 2008 – 2009. Ben Gregory, of design firm Nettl at Digiprint, says: “Leading a business through a recession is hard work. There were times where I struggled, but focusing on the bigger picture and aiming to reach directly achievable goals – rather than spending time on smaller problems – was vital in driving my business through tough times.”

Gregory explains that while it may seem counter-intuitive, business owners should ensure they take time to switch off during a downturn. “It’s understandable that during difficult times work can consume you, but try not to let that happen. I made a conscious effort to rarely take my work home with me. Putting a stop to actively checking my emails, and reducing the amount I spoke about business, really allowed my brain to rest.”

He adds that, while it might be necessary to cut costs, small firms should think carefully about cutting back on vital activity. “Often when businesses look at their finances, one of the first victims is the marketing budget,” Gregory says. “But the companies who succeed after a recession are the ones shouting the loudest and actually growing their brand to rapidly scoop up work when things return to normal.”

Focus on the now

Earl Yardley, director at camera technology businesses Industrial Vision Systems, says that his firm managed to withstand the 2008 crash with a mixture of “stable leadership with future planning combined with robust control of finances and personnel”.

“I managed to keep my head by focusing on the current, and using the time to improve processes, increase internal training and prepare for future growth trends,” he explains. “One of the most important points is to retain staff wherever possible: it takes a long time to develop a stable, trustworthy team around you, and if you can’t retain them, you will have to start building the team back up once you get to the other side of the recession.”

Invest in your online presence

Rick Smith at business rescue specialist Forbes Burton adds: “In order for owners to reduce the impact of this recession on their businesses, they need to have a full understanding of how the market will react as the economy tries to bounce back from its shutdown.

“Business owners could look to reduce their costs to save in the short term, but they need to know what will be happening over the coming months and be able to predict how it will impact on their day-to-day operations. So far, we’ve seen firms that have an online presence perform much better than those who cannot trade without their physical stores being open. If we’re going to be living with this pandemic and its fallout for a while, investing in an e-commerce platform could make a huge difference to a business’s performance.”

Visit GOV.UK to stay up to date with changes to government support and Covid-19 restrictions.

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Leadership and Management, Strategy and Planning