Directors should ensure that management is not solely bunkered down with cost-containment strategies as it tries to future-proof the business in tough times, warns Jason Fryer, head of small business services at American Express.
He says the key lesson from a nationwide survey of more than 1,000 small business owners by American Express is that companies have to spend money to make money.
The survey found that almost three in four businesses (73 per cent) had taken actions to future-proof their operations in the face of sustained economic uncertainty.
Nonetheless, a “tale of two profit lines” emerged. Companies that focused their efforts on growth, improving product and service offerings, marketing and better use of cash flow are reaping rewards. On the other hand, those that were more focused on cost containment were more likely to report a decline in profits over the past 12 months.
Nearly a quarter of small businesses surveyed improved their product or service offerings and half of these increased their profits in the past year. Similarly, 57 per cent of those that ramped up marketing activity also enjoyed higher profits.
Given these findings, Fryer says directors of small businesses should ask management what strategies it has in place to improve product and service offerings.
“This is critical to future-proofing business operations at any stage in the economic cycle. Business plans should be geared toward measurable business growth and product or service improvements designed to meet evolving market needs,” he says.
“Our research demonstrated that 40 per cent of businesses attempting to future-proof their operations by containing costs saw a reduction in profit. This indicates that a cost reduction mindset is not always conducive to retaining and attracting customers. Businesses need to be agile and prepared to invest to remain relevant and competitive.
“Our research also indicates that future-proofing a small business requires a clear focus on growth – whether that be new product or servicing opportunities, marketing initiatives or targeting a new customer base. We also saw evidence that improved cash flow was a key component of business profitability and an enabler of further investment in the business.”
Fryer believes boards should encourage their organisations to think strategically and creatively about new business opportunities. “They also need to support innovation, demand new ideas and should not accept the status quo. Without a willingness to respond and evolve with the market, businesses are unlikely to realise their full potential. A positive and energetic board can make a profound difference to a business of any size.”
He adds that small business is the nimble and innovative younger sibling of large business. “While large businesses rely on economies of scale and market share to succeed, what sets small businesses apart is their ability to adapt quickly to changes in customer behaviour and market sentiment. Herein lies the key to future-proofing any business. It is essential that businesses facing tough economic times don’t lose momentum or the willingness to take calculated risks. Our research paints a very clear picture: now is not the time to bunker down; now is the time to go on the front foot and invest for the future.”
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