SMEs are facing another different challenging environment, and have to continue to adapt and think differently

SMEs are facing another different challenging environment, and have to continue to adapt and think differently

About The FSE Group

At The FSE Group, we have a 20-year history of supporting high growth UK SMEs, especially in underrepresented areas of the UK. In that time, we have had the opportunity to work through multiple market cycles and economic phenomena and see how they have affected SMEs.  Our mantra is “more than money”, which is achieved by genuinely looking to provide insight and challenges to businesses we support, to ultimately improve their “probability of success”.

This time is not different

The COVID-19 pandemic threw multiple assumptions about economic policy out of the window. One of them being whether the government should provide direct financial support to people and businesses, and if so, what are the circumstances under which that support is considered a good idea? Society appeared to agree that direct monetary assistance was reasonable in an economic crisis that was caused by non-economic short-term factors – namely, a global pandemic.

Whilst some SMEs have been hit very hard, others have remained unaffected, and for them it really has been business as usual, some are even showing strong growth.  Having spoken with many different sized SMEs which make up our portfolio, they have managed to demonstrate their true competitive advantage – their adaptability. From quickly changing their working models to fully remote ones, all the way to launching new businesses and products built around the new world of work, SMEs took up the challenge to boost productivity and keep the engine of the UK economy running.

SMEs now face quite a different challenge, including most government support to businesses coming to an end. Whilst they faced inflationary challenges during the pandemic, partially driven by challenges in supply chains, this has now been amplified by the rise in energy prices, bringing back memories of the 1970s. This has driven up costs considerably - the RPI (Retail Price Index) for April 2022 was 11.1%, notably the highest in decades. SMEs face the challenge in costs for themselves, but also for their staff who are feeling the pressures of inflation. This leads to challenges in staff retention and is a factor in what is being termed “The Great Resignation”.

Facing the challenge

There are going to be some causalities from this current business trading environment.  There always is – typically it boils down to decisive management action.  Using mentors and other support resources helps owners and leaders to work “on their business” even when it feels that it’s fire fighting “in the business”. 

Retaining, and motivating highly productive staff is so important.  Businesses that can afford a pay rise for their staff in line with inflation, should pay their staff more – or at least understand the difference between the effects of inflation on their staff’s disposable income.  However, this is a relatively privileged position - for many SMEs, especially those at the earlier stages who may not be profitable or have a balance sheet that can support this, this is not a viable solution. This is where the adaptable and nimble nature of SMEs can be an advantage. SMEs that are focussed on rapid growth and increasing shareholder value can consider setting up an option pool for their staff – it is generally good form for options to be allocated to all staff and not just restricted to senior team members. SMEs can also consider providing additional flexibility to their teams, as moving to a hybrid or fully-remote working model can help keep costs under control, and can help provide staff with greater flexibility. Additionally, it no longer restricts the hiring pool for candidates to a 20-mile radius of the office, allowing SMEs to hire skilled staff based across the UK’s regions.  The key is for leaders and owners to think differently.

In summary

UK Plc needs SMEs to grow and prosper. The FSE Group’s regional funds are open to support them by providing funding to eligible businesses to assist in their growth journey.  Many of the funds can provide both debt and equity finance and this allows the right combination of funding.  In addition, the funds are there to support the future – through genuine projection-led funding.