Hearts, minds and the bottom line

Businesses are feeling the squeeze and this pressure is particularly acute for small and medium-sized businesses (SMBs). In addition to mounting costs that threaten their profitability and even their viability, many SMBs are struggling to find the staff they need in a constrained labour market.

Rising energy prices, higher interest rates and declining consumer confidence are hitting many SMBs hard. In the UK, small business confidence is at its lowest since the global financial crisis almost 15 years ago, with many firms fearing they may not survive.^[1] Finding and keeping staff has never been more difficult, with the Federation of Small Businesses saying in August 2022 that 78 per cent of SMBs had experienced problems with recruitment over the previous 12 months.^[2]

Stay focused on growth

How, then, to pick a path through these difficulties? The key is to target efficiency without undermining the potential for growth, says Ryan Demaray, Global Head of SMB Sales at SAP Concur, a leader in the travel and expense management industry. “The temptation is to reduce all costs across the business – to cut to the bone,” he warns. “But that has some really negative implications that could erode the business, undermine critical strategies and damage employee morale.”

Financial managers have a crucial responsibility in these challenging times, argues Demaray. Their understanding of the business, particularly given modern financial analysis tools, enables them not only to lead the drive for efficiency, but also to identify crucial opportunities. “Finance leaders are in a position to identify the business’s strongest profit margins and where to make further enhancements,” he points out.

It's important to be forensic, suggests Helen Yu of Tigon Advisory, which helps a wide range of businesses pursue growth. “Go back to the basics – focus on the three A’s of adapt, adjust and automate.”

The key, Yu suggests, is for business owners to spend time getting to know their business – right down to the unit cost of every activity. Only after that can they dial up the focus on more profitable activities and be prepared to step away from loss makers, as well as pursue greater efficiency through automating as much of the operation as possible. This will help organisations deal with labour market shortages and inflation, she points out, as well as driving efficiency.

Emma Loisel, the Co-founder and Chair of London-based Volcano Coffee Works, is one small business leader working hard to overcome strong headwinds by taking this approach. Volcano was founded in 2010, and its 30-strong team now runs a roastery that produces coffee for sale to both trade buyers and consumers, as well as a café. But the cost of living crisis is taking its toll.

“People are still buying coffee, but they’ve stopped ordering anything with it,” says Loisel. “We’re having to look at every single line of cost in our business.”

Loisel’s response has been to focus on efficiency while working hard to stay true to what the business stands for: high quality products and good service. “What’s right for our suppliers and our business won’t necessarily be right for someone else,” she says. “We’ve got to be prepared to ask hard questions.”

Take the workforce with you

Similarly, on recruitment and retention, Loisel points to the need to manage change carefully. “If you’re changing your business model and the way people work, as we’ve had to do during and after the pandemic, you have to take people with you,” she says. “Our North Star is that everyone gets their shot: that’s retraining and reskilling, but it’s also leadership – leading people through the change.”

It's advice that Yu also thinks is important. Many companies have their work cut out to become organisations that appeal to the next generation of workers, she suggests. “In western countries, Generation Z already accounts for a sizeable proportion of the workforce. They’re ethnically diverse, purpose-driven and they talk about everything to each other,” Yu says. “The leadership of most companies, by contrast, look completely different.”

To appeal to this new generation of workers, employers will need to offer roles that feel purposeful. Again, automation and technology can help, stripping out repetitive manual tasks from people’s jobs and freeing them up for more meaningful assignments.

Similarly, modern accounting and expense systems generate a wealth of data to help organisations make more informed decisions. Staff can be deployed in areas where their output will have the most impact.

The bottom line, says Demaray of SAP Concur, is that challenging times bring new opportunities. “There are winners in every economic downturn,” he says. Those that thrive are those who are quick to read and act on signals of change and who have, crucially, learned to harness arguably their greatest resource: the people that work for them. Clearly, an ability to adapt and pivot from business as usual to business unusual will unlock a world of possibilities.