The retail sector is the least equipped to deal with an economic downturn
With the prospects of a significant slowdown in the UK economy, new research from the Society of Turnaround Professionals (STP) and GE Commercial Finance indicates the top three sectors most likely to be hit by a deterioration in the economy are those operating in the retail, financial and manufacturing sectors.
The recent poll amongst turnaround professionals, who are often parachuted into companies when they get into difficulties, indicates that 63% believe that businesses operating in the retail sector are the least prepared for a downturn in the economy, followed by those in the financial sector (13%) and manufacturing (9%).
“With the last major slump in the economy having been in the early 1990s, many of today’s business managers and owners have not had to deal with the consequences of softening demand and limited credit availability. Being able to successfully deal with these more adverse conditions will require businesses to focus on their cashflow, costs and markets,” said Christine Elliot, Chief Executive of the STP.
According to the poll of STP members, who have turned around many hundreds of companies in difficulty, only 4% believe that UK firms in general are well equipped to deal with a downturn in the economy, with over half (52%) believing that they are poorly prepared. The top three regions most likely to be hit by a deterioration in the economy are those operating in Wales, the North East and London.
“In recent years, the consumer has been a major force underpinning the strength in the UK economy. Recent interest rate hikes, increased tax burden and fuel inflation have taken their toll which, in turn, limit discretionary spending in areas,” says John Jenkins CEO, GE Commercial Finance, Business Finance.
Based on their significant experience of helping companies in trouble, the turnaround professionals polled think that first and foremost businesses should focus on improving their cashflow in order to increase their prospects of weathering any storm.
“Many profitable firms can quickly end up in difficulty if they have not focused on generating cash quickly. Using alternative forms of finance, such as asset-based lending, could play a significant role in helping some firms release cash tied up in assets such as invoices, inventory, plant and machinery,” said Jenkins.
Also on their list of tips is to seek the advice of experienced managers and business advisors early on and to focus on winning new business from customers less likely to be hit by a slow down in domestic demand.
“Acting early before problems arise is essential. Seeking the advice or guidance of a seasoned professional or business manager can help businesses focus on ensuring that they have the right organisational, cost and financial structures to see them through more difficult periods, whilst also helping to identify new markets to boost sales,” concluded Elliot.
