Growing a business in a recession

Entrepreneurs tell Growing Business why they are expecting to grow despite the economic downturn

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We all know that the economy is going to shrink this year, but even if GDP decreases by a few per cent, that still leaves a lot to work with. Growing Business speaks to some of ‘the majority’ on how they are dealing with the recession

Judging by the newspaper headlines, you’d be forgiven for thinking that every business in the UK is going bust. But it’s unwise to get consumed by the negativity and avoid making what are perfectly sound, positive business decisions. Entrepreneurs understand that business must continue in spite of the downturn and are more likely than anyone to subscribe to the following view: “Yes, the economy is going to shrink by 4%, but that still leaves 96%.”

With this in mind, we decided to speak to some entrepreneurs who are among the majority; still very much alive and kicking.

Businesses that survive in a recession

It isn’t a good time to be an estate agent, a recruitment consultant or in financial services, but there are plenty of other businesses that aren’t being stung. Typically, in a recession luxury items are given up, but the sellers of necessities continue unabated. David Watt, managing director of Corporate Innovations, expects his event marketing business to grow this year, although his projections have been revised down. However, he is still expecting more than last year and this is because of the strength of his customers and their propositions. “We have got a good spread, and many are dealing in necessities not luxuries – people that are trying to grow in a recession should look to have these type of clients,” he says.

It’s change all round, and a recession can signal the start of a new career. Some look to start-up a new business, while others opt for safer routes. Franchising is one area that many are drawn to, because it offers a tried-and-tested route to success. Edward Mauleverer, founder of Ed’s Garden Maintenance, says he’s finding it easier to get people to invest into his franchised business. “A lot of people are being made redundant and are choosing to make a career, as well as a lifestyle change,” he says.

We have all become far more conscious about the money in our pockets and don’t want to spend cash unless we have to. Similarly, with the housing market in a slump, people are much more interested in looking for new ways to invest and make money. Ross Elder, founder of Holiday Lettings, believes his business, which advertises holiday homes abroad, is enjoying an upturn. He says that although holidays abroad might be in decline for some, the number of people looking to rent out their overseas properties has gone up. “We are fortunate to have a business that offers second-home owners a route to making thousands in these tough times, while offering British holidaymakers a way to holiday for a fraction of the cost of the alternatives. As a result, we’re riding the storm quite positively,” he says.

Business opportunities in recession

Even if your business isn’t as busy as it was 12 months ago, or if your growth predictions have been revised, there are still opportunities out there. Sandy Purewal runs PR firm Octopus Communications and believes that now is the time to be demanding value for money. “This is a buyers’ market,” he says. “From rent to recruitment, now is the time to re-evaluate and renegotiate terms and conditions. Recruiters are open to reducing finders’ fees and there is lots of empty office space around. So be bold and make offers that reflect today’s economy.”

Watt agrees and describes the market for good staff as “rich pickings”. Also, he suggests now is the time to be thinking about picking up valuable assets at a reduced price. If you have cash in the bank, you’re in a hugely advantageous situation. Banks and investors are not re-financing perfectly viable businesses and this means that some great companies will be available for purchase. “If you have a financially stable business, you can take advantage by keeping close to your competitors,” Watt says. “If you understand their problems, you might do a merger to avoid them going into administration and making staff redundant.”

Getting paid in a recession

For all the talk of opportunities, now is also a time to be careful and to ensure you don’t get caught out. Cash-flow is always king for small companies and you need to undertake good housekeeping – up to date cash projections, regular invoicing, and thorough credit checks – to make sure you don’t join the ranks of the dispossessed. For some of your customers and clients, now isn’t an easy time to be making payments and sadly for some it’s no fault of their own. Yet entrepreneurs understand that their first responsibility is to look after their own businesses, and chasing payment is part of the job.

“If, after two reminders and 60 days, customers still don’t respond, we scale back on consultancy activity and suspend any services that we’ve engaged on their behalf,” says Purewal. “Since we work on rolling activity plans, this can have a dramatic effect on deliverables and adequate forewarning of this is usually the catalyst required to kick start payments.”

The banking crisis has hurt many, but one area which is now coming home to more insulated businesses is the fall in the strength of the pound. Internationally focused companies need to plan carefully on how they handle their payments or they risk getting caught out by currency fluctuations. Watt has customers in the US and Europe, and the pound’s relative weakness has meant he’s altered the way he handles payments. “The one thing that has affected us from a banking perspective is that we have quite a few clients that pay us in dollars or euros,” he says.

“If you can take money in different currencies because you have planned ahead, you’ll be able to weather the recession. You can sit on that money and use it when you need to.”

A good time to grow?

For some, the recession is a lousy thing and it takes a cold heart not to feel sorry for those who are feeling the pain, especially when it’s not their fault. Nevertheless, not all businesses have been hit and some will continue to do well. Certainly, among the businesses quoted here, there is considerable optimism mixed with a determination that the recession will not hurt them – as well as the hope that it will even help them to succeed. “If your business helps consumers save money or make money, it’s an excellent time to grow,” says Elder. “Otherwise, I would say it’s good to consider growing market share as others contract their marketing and investment.”

Purewal agrees and strikes a Darwinian chord in his assessment of the economy: “This is an opportunity for businesses that are nimble enough to adapt,” he says. “Evolution is key to growth. Providing the same old services in this climate is a path to either keeping the status quo or declining.”