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Chief UK economist warns of period of stagnation – How will this affect your SME?
25 September 2023

Stagnation is a prolonged period of little or no growth in the economy and it can have a serious impact on your business.

Whilst talking to The Guardian, Samuel Tombs, a leading UK economist, claimed that stagnation will cause “businesses to cut employment and investment, and trigger a sharp decline in residential investment.”

He added: “GDP will fall one per cent this year”, which, whilst not sounding significant, is a major blow to enterprising businesses.

Here’s an overview of what stagnation means for your business and how to navigate these times of economic uncertainty.

Diminished revenue growth

During times of economic stagnation, consumer spending often slows down. This can lead to reduced sales and revenue growth for small businesses.

Companies in discretionary spending sectors like leisure and retail are often the hardest hit because these tend to be areas in which consumers start to save money during periods of economic difficulty.

However, the effects can be felt across various industries and every business should be prepared to face difficulties.

You may need to focus on cutting costs and increasing profits through offers or adjustments to pricing strategies. In times like these, an accountant can help you make sense of the steps your business needs to take.

Cash flow challenges

Stagnation may lead to increased payment delays from customers, impacting your cash flow. Effective cash flow management becomes essential during these times as regular monitoring and robust credit control procedures can help maintain liquidity.

Ensuring your customers pay on time and forecasting your cash flow correctly can greatly increase your chances of avoiding cash-related crises. Don’t forget, cash flow issues are one of the most common factors in business insolvencies.

Having a sound financial plan and discussing these issues with your accountant can help to maintain resilience during cash flow instability.

Difficulty in accessing finance

Banks and other financial institutions may become more risk-averse during periods of stagnation, making it harder for businesses to access necessary funding or receive loans.

Exploring alternative financing options like crowdfunding or grants may become essential to secure investment into the business.

In addition, your savings and collateral can make a big difference when banks are unable to lend you money so exploring your surpluses and the value of existing assets is critical to understanding your position.

Potential opportunities

Despite the challenges, stagnation can also present opportunities. Businesses that can adapt, innovate, and find new markets or diversify their services may find ways to thrive in an economic downturn.

Stagnation is a complex issue that requires strategic planning and expert guidance to navigate successfully.

By understanding the potential impacts on your business, and with a proactive approach to management and innovation, you can mitigate risks and even find new avenues for growth.

Our team is here to assist you in developing strategies to survive and thrive during periods of stagnation. If you would like to receive expert advice tailored to your business needs, contact us today.