IT IS STILL early days for our new coalition government and while a number of actions have been taken – not least announcements on public sector cuts – it is probably not easy for us to grasp the new order.
The election aside and with evidence that we appear to be coming out of recession, it really must now be time to get to the business of business. Some may be hoping for some sort of boom to boost their sales, profits and balance sheet. However, few sectors of the economy are likely to see such a thing unless they are in emerging markets or they possess a significant competitive advantage.
The period of economic prosperity we enjoyed pre-recession in the main was down to the UK’s unprecedented consumer spending and high levels of public sector spending. With households and the government looking to balance their books and repay debts, the catalyst for a boom does not seem to exist.
With the apparent scarcity of liquidity in the financial markets and at the same time the inability of those seeking finance to demonstrate their ability to service debt, this actually might be a good thing – overall it can often be much easier to finance steady and incremental growth from working capital and retained profits.
What does this mean for business? In a boom, it is often easy for even a badly run business to survive and prosper. In the current trading environment – and what looks to be the type of economic conditions we will have to operate in for at least a number of years – it could be said only well-run and well-managed businesses will survive and prosper.
In essence though, the characteristics of what makes a good business do not change with economic conditions.
For an established business, the challenges will undoubtedly include the need to become more enterprising and entrepreneurial with the focus now being around opportunities to improve profitability through growth whether through new markets, new products, new processes and even competitor acquisition.
We may also see a greater focus on businesses looking more at sustainability and focusing on longevity as opposed to short-term trading. As part of a robust economy, businesses that build strong balance sheets and sound financial management tend to fare better overall. As a result and given the economic environment we are in today, businesses are likely to be looking to retain more of their profits, build up greater cash reserves and as result become less reliant on external sources of finance for everyday working capital, perhaps even to finance assets or other expansion plans.
With the additional threat of tax hikes, the years ahead will be a challenge for us all but perhaps a return to some sound business – even good old family values – may help to ensure the success of yours or the business you work for.
Streets Chartered Accountants is a top 40 UK accountancy firm. Telephone 0845 880 0320, email email@example.com or visit www.streetsweb.co.uk