5 strategies small businesses can adopt to thrive in an environment of rising interest rates

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To help to get inflation back down; on 3 August 2023, the bank of England raised our interest rate (Bank Rate) by 0.25 percentage points to 5.25%. This is its highest level since February 2008. This has a huge impact on businesses, most especially small businesses which are often dependent on external finance for growth and investment. The increased cost of borrowing therefore makes it more difficult for them to get help to raise finance they need to thrive. Hence, such businesses need to be more proactive and strategic in their financial management to keep afloat. Here are five specific steps and strategies they can implement:

1. Monitor Cash Flow: Many businesses especially small and startup businesses can easily make the mistake of focusing more on getting more customers and lose sight on their cash flow and identifying areas where it can be improved. Implementing efficient bookkeeping and collection processes to reduce outstanding receivables and ensure a steady inflow of cash in paramount. This includes reviewing all existing loans and debt arrangement strategies and monitoring and reducing non-essential expenses without impacting on the quality of services and products.

 

1. Focus on Customer Loyalty: It is easier and more cost-efficient to retain existing customers than to acquire new ones. Hence, prioritize customer service satisfaction and retention. Loyal customers can provide a stable revenue base and act as brand advocates, especially on social media; such as You Tube and Facebook, including word of mouth and therefore reducing the need for costly marketing to new customers.

 

1. Negotiate with Suppliers: This is most effective with long term suppliers. Engage in negotiations with suppliers to secure better terms and a wider time frame in witch to repay and if possible attain credit. This can potentially reduce costs and give the business time to build up profits and also improve cash flow during times of higher interest rates.

 

1. Boost Marketing Efforts: This may sound like a contradiction to point 2, however it’s not. A lot of small businesses claim they don’t have time for social media. Post-covid has proved this area to be the more unavoidable for businesses to attain effective business growth plans. With a large percentage of people working from home, businesses are forced to invest in targeted marketing campaigns to attract new customers and expand the business's reach. This is where Digital marketing, social media, and other cost-effective channels; such as Facebook, you tube, TikTok, LinkedIn etc are of importance. Take them seriously, investigate which is a better channel for your kind of business and take action.

 

1. Seek Professional Advice: Consult with our financial advisors to gain insights into industry-specific strategies and solutions and keep abreast of the changes in the economy. This gives you the opportunity to focus on what matters to you most which is your business. It is our responsibility and role as Business and Financial Advisors to Keep abreast of the economic indicators and interest rate trends as they unfold, monitor the business news, changes and updates from government and banks including the Bank of England to anticipate future changes and how these changes impact on your business, both in the short and long term.

 
 
By implementing the above business improvement strategies and maintaining a proactive approach to financial management, small businesses can rise above the challenges of the rising interest rates and position themselves for long-term success and growth.

If you need help in any of the above pointers or others regarding the rise in interest rates, give us a call today on 0333 355 1696 or send us a message at [email protected].