Decision making in difficult times
UK businesses are facing their most challenging times yet, with the Chancellor Jeremy Hunt declaring the UK is now in recession. Sarah Ediss offers advice on how to approach decision making in difficult times.
The last few years has been an unpredictable rollercoaster. Having suffered during the pandemic, businesses are now facing an uncertain economy, with the war in Ukraine, political instability and years of quantitative easing creating a tough trading environment. Supply chain difficulties, significant inflation, rising interest rates and a war for talent are the result.
Amid such uncertainty, it is very difficult for businesses to plan for the future. Here we set out some useful key points for owners and managers to consider when making decisions in uncertain times.
We aren’t encouraging inertia but when making decisions in an uncertain environment, it is important that they are not a knee-jerk reaction. Any important strategic decisions should be well thought out. Make sure you take time to step back and look at the bigger picture. Sometimes and when under pressure it is very easy to get drawn into short term thinking, but keep your head up and analyse the longer term impact of any decision.
Consult other people
You will have lots of people within your network who you can draw on for support. Perhaps there are other leaders within your business you could bounce ideas off. Your employees may also have a useful viewpoint. Don’t forget your accountant is there to support you and will be seeing other business with similar issues and, therefore, are likely to be able to act as a trusted advisor.
Your accountant is likely to recommend that you model the financial outcome of the potential options you are considering. Then you should perform sensitivity analysis to scenario plan the alternative outcomes which could potentially occur given the uncertainty ahead of you. For example:
- What if interest rates increase by 5%.
- What if my purchasing costs are 10% higher.
- What if a recessions results in my customer sales falling by 20%.
Using mini scenarios, or a combination of mini scenarios allow management teams to look for crunch points and amend their decisions accordingly. There is a great range of software tools now available to help with this forecasting.
Include a contingency budget
Any budget is likely to include a small contingency. During uncertain times we expect that this contingency fund is likely to be higher normal. This will allow large flex within your budget without endangering the business.
One decision at a time
If the market you are operating within is particularly volatile, you may decide to only take one decision at a time and monitor the impact of that decision for a short period of time before making the next change to your business. You are then able to assess more accurately whether it was the correct course of action for your business. This will very much depend on the situation and may not be feasible if your business is in difficulty and immediate action is required on a number of fronts.
For more information on how we can support your business, please speak to your usual contact Kreston Reeves or get in touch with us here.
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