The 2018 financial year has a range of challenges in store for small and medium sized enterprises. Businesses of any size are currently in a state of flux, with factors such as international trade disruptions, disruptive technologies, sustainability and the ‘on demand’ and ‘gig economy’ changing many corporates’ strategic plans. But what are the issues that are keeping small and medium business owners up at night? Let’s look at some of the trends that small businesses should expect in FY 2018.
Fragile Supply Chains and Stock Control
Supply chains are becoming increasingly complex, predominantly as a result of increasing specialisation in the production process. This poses a challenge for supply chain management and stock control. Larger firms have the ability to vertically integrate or otherwise hedge the risks of supply chain failure, such as by partnering with multiple suppliers across several markets. Small and medium sized businesses must contend with increasingly unreliable partners and heightened risk of critical failure. In 2017 and beyond, smaller producers will need to build flexibility and contingencies into their supply chains.
Access to Capital
As start-ups and other SMEs increasingly challenge mainstream businesses, access to funding is becoming more and more important for smaller businesses to grow. Although banks and other traditional lenders are often reluctant to lend to SMEs (particularly without security against personal assets), the rise of peer-to-peer and alternative lenders is helping to fill the gap for small businesses that need discrete or bridging finance. Larger growth plans are increasingly being funded by raising capital, particularly through equity crowdfunding sites. Accessing this type of funding can be difficult for businesses, and may require more detailed business planning and reporting.
While many businesses have a well thought out strategy for attracting external funding, less thought often goes into better deploying existing capital. Businesses that have reduced their reliance on external funding have historically enjoyed higher growth and long term success. Carefully consider business expenses, particularly where large amounts of capital are tied up for little real benefit. Many businesses build up an unnecessarily large buffer of safety stock, tying up money that could be better spent elsewhere in the business. A small investment in more stringent stock control could help to reduce capital constraints.
Poorly Performing IT
Small businesses do not have a monopoly on poor IT implementations, with large businesses regularly getting change management and IT resourcing wrong. In a small business, however, high IT expenses and unreliable technology can have an outsized impact on growth. Thankfully, IT implementations tend to be simpler in smaller businesses. As more and more applications (such as productivity software, accounting and stock control systems) move into the cloud, small business owners have an opportunity to increase productivity and take back time that can be better used growing the business.
Particularly in the consumer retail space, small businesses are finding that competitors are more often relying on price as a key point of difference. Strong price competition is decreasing cash flow and profitability for most businesses, but particularly smaller firms. In response, many small firms are looking at ways of reducing overheads. This often involves changing the business’ approach to stock control, reducing inventory on hand and better managing transport costs. Small businesses are also focussing on creating a better customer experience, including by selling boutique or artisan products, providing more information to customers or by improving their e-commerce offering. These are all ways to stand out from price competitive large format retailers.