Back to basics for Scottish business facing declining confidence and falling demand

Recent reports by the ICAEW Business Confidence Monitor (BCM): Scotland for Q42020, and the Royal Bank of Scotland UK Small Business PMI for October ‘20 make for some hard reading, with the outlook for business in Scotland looking challenging according to both and confidence is low.

On a local level, some Dumfries and Galloway businesses have seen the knock-on effect of COVID restrictions, particularly hit hard are those in the Hospitality, Leisure and Tourism sector. However, in contrast to the reports’ findings, other sectors have not been impacted in the same way and Agriculture and the related supply chains, in particular, continue to have many success stories. 

For those in sectors that have been hard hit, whilst short-term funding from the UK and Scottish Governments will help, there are other steps businesses may consider:

Reduce prices?

According to the RBS report, Scotland is also experiencing a reduction in selling prices, which combined with declining sales is having a detrimental effect on margins.

There is a temptation in any downturn to reduce prices in order to retain market share, and there may be pressure to do this, but experience tells us that price decreases are very difficult to reverse unless they result in a significant increase in volume in sales. We would encourage businesses to maintain their prices wherever possible unless they can demonstrate a significant increase in volume.

Focus and adapt your strategy

Although the economic outlook is challenging, this shouldn’t mean that strategic goals are any less important. The likelihood is that these goals should be reviewed, timelines examined and action is taken to stay focussed on these.

The RBS report noted that small manufacturers are seeing a drop in output as they have worked their way through the backlog built up earlier in the year, while consumer demand also weakens.

This is the current position and businesses should be building these into their plans to give the best chance of weathering the storm, resetting strategy and reassessing requirements, be that accessing available funding, structuring the business appropriately or searching out new customers or markets.

Grants and assistance

Whilst local authority support grants and government schemes will provide some security for businesses in the short term they will do little to increase confidence for the future. With restrictions and criteria funding opportunities changing, it’s important to keep checking entitlements.

Brexit – we can no longer wait and see

As the New Year approaches, so does Brexit - a further uncertainty - and this is clearly playing into the sentiments of business owners who are not only facing economic uncertainty due to the pandemic, but also the unknown impact of Brexit itself. We are still delivering Customs training to businesses with a view to the changes on 1^st January despite not quite knowing what these will look like in final form.

Finally

There are clearly challenges ahead for businesses in Dumfries and Galloway and Scotland as a whole. We must, however, utilise everything at our disposal, and put what plans we can in place to come out the other end and look forward to a more positive outlook in the future.

We have to keep doing the basics right, have a strategy, review our cashflows, make sure our businesses are properly funded, look after our people and understand our risks as much as we can.

Sources:

1. ICAEW Business Confidence Monitor (BCM) Scotland
2. RBS UK Small Business PMI