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Overcoming challenges for SMEs

Some of the world's best-known companies started out during tough economic times – Apple, Burger King and General Electric among them. Good quality businesses can and do find market opportunities when others are struggling, but it's essential that they take careful steps to mitigate against the increased risks that such turbulence brings.

The same is true for SMEs. There are currently signs of confidence in the market – a recent survey from HSBC Commercial Bank showed that eight out of ten SMEs expected growth in the next 12 months – and many are confidently seeking out new markets and innovative strategies. The CBI have highlighted their growth potential, and believe exports could increase from 29% of the UK's GDP to 36% by 2016.

Nevertheless, there are some clear rules for companies to follow if they want to succeed – and the current climate makes this all the more essential.

While SMEs won't need reminding of the importance of the customer, this has come into fresh focus in the wider market. There has been a shift in demand of perceived consumer value, putting increased importance on brand and customer perception of branding. In the same way, quality of client service, trust and commitment are critical to financial performance as they are intrinsically linked to client-perceived value, competitive advantage, and a target market focus.

Clients are also more likely to favour a unique proposition – which by definition will not be the same as one offered elsewhere. Businesses need to focus on differentiating themselves from competitors. This means they must recognise available opportunities, and be prepared to take themselves in a completely new direction if necessary.

A willingness to adapt the business model according to new market demands is only realistic in the current conditions, and very few commentators expect the economy to bounce back in the short term. Long term strategies need to take this into account, and be aimed at fundamentally improving operations.

Growth will be achieved through a combination of innovation and good control on the financial management – particularly when things aren’t working so well. Business planning is central. Businesses looking for growth should have a strategic focus coupled with a robust business plan which is agreed by the management team. This plan needs to include financial projections and scenario planning for material variances to expectations.

Measurement matters too. Quality management information is key to successfully monitoring a business’s performance. It should be accurate, prepared and circulated on a timely basis, and, most importantly, contain the information that the management team needs to effectively run the business. They will need to assess and understand the key performance indicators of the business – and be prepared to accept input from across the management, including non-accountants. The non-accountants, in turn, must have a firm grasp of key financial priorities – perhaps most importantly the differences between profit and cash, to ensure that working capital has sufficient headroom at all times.

But even the best-run businesses can suffer in times like these. Another function of good management information is to spot early warning signs of underperformance and address them before they become critical. Contingency plans should be prepared, with consideration given to debt restructuring and negotiated payment plans, access to additional equity or working capital, operational changes and overhead reduction.

And the professionals are there to help, too. If the business constantly exceeds its debt facilities or has unresolved covenant breaches, or if filing/reporting deadlines are missed, qualified advice can sometimes reveal avenues which were previously not available. Statutory demands for payment, or winding-up petitions, can also be dealt with.

Similarly, professionals can help if the problem is not debt, but debtors who are consistently paying late. According to research from Bacs, SMEs are owed £3.6bn in late payments, a 10% increase from last year. In a world where cash flow is king, keeping control of timely payment is essential.

In summary, there are opportunities for SMEs across every marketplace, but the importance of rigorous management and expert support has never been more evident. It looks as if this will be the case for some time to come.