How to overcome the biggest challenges in business

The entrepreneurial journey is fraught with challenges and uncertainty. The recent recessionary environment, with stagnating growth coupled with high inflation and increased interest rates, has been the latest obstacle to test entrepreneurs and business owners’ financial resilience.

We recently surveyed a selection of UK business owners. The results revealed that more than half (53%) see high interest rates as a threat to UK businesses. One in four (25%) believed a change in government would be a threat to their business as Labour regains the reins at Westminster.

But it’s tough times like these that can make brilliant businesses. The same survey revealed that over half (54%) of UK business owners see the current recession as an opportunity for entrepreneurs. One in two (51%) believe that British entrepreneurship is about to boom.

What are the biggest challenges for small businesses?

Economic downturns – economic recessions present challenges for businesses of all sizes, from small, family-run businesses to global corporate conglomerates. While no two recessions are the same, you’ll typically see job losses, declines in real household incomes, and as a result, reduced consumer spending. All of which erode the bottom line for businesses.

Larger businesses typically have a better time weathering the storm during a recession. They’re larger and more established companies, with the financial fire power and market share to withstand a market downturn.

Rising inflation and higher interest rates – rising inflation isn’t just an issue for consumers. It’s one of the biggest challenges for entrepreneurs and business owners too. Inflation disproportionately impacts small businesses, which have less weight behind them when it comes to buying power compared to their larger peers.

If the rate of inflation rises above the targets set by government, central banks will start an interest rate hiking cycle as a tool to cool down rising prices. Higher interest rates can increase costs for businesses, especially those with debt on their balance sheets.

Supply-chain disruption – this is a common challenge for businesses, especially those who provide goods rather than services. Delays in receiving the goods from manufacturers can lead to a loss in sales, missed opportunities, and a decrease in customer satisfaction.

In addition, supply-chain disruption could lead to higher production and shipping costs, further eating away at the profitability for businesses. Similar to the impact of inflation, small businesses typically feel the full force of any supply-chain disruption as suppliers will want to keep their biggest and most valuable customers happy, which are typically the larger corporations.

How to overcome business challenges

Seek new opportunities

In most cases, entrepreneurs and business owners often face the same challenges and have the same predicament to others. It’s the businesses that seek opportunities in the face of adversity that often succeed.

Artificial Intelligence (AI) is the latest technological development set to revolutionise the world as we know it today. It allows businesses to streamline their operations and creates opportunities for those who can identify new ways to apply the technology.

Half of business owners are worried about the impact of AI on the next generation. At the same time, three in five (62%) are excited about what AI will bring, while a similar number (60%) think it will make their business more profitable and view it as an opportunity to improve productivity and efficiency.

Just like the businesses that thrived during the Great Financial Crisis (GFC) and the Covid-19 pandemic, it’s the businesses that are willing to embrace change and seek new opportunities that will succeed through uncertainty.

Be agile

Small businesses can be more agile than their larger peers during times of uncertainty. They have the ability to shift and pivot in a different direction, seeking out new opportunities during adversity.

During the COVID-19 pandemic, many businesses pivoted by either offering new products or making changes to how they offered certain services. For example, food and beverage companies change the way they provided their products, with takeaway and home delivery services becoming increasing popular.

According to Beahurst’s database, 89 high-growth companies pivoted during COVID-19. Almost all of them (97%) are still active today.

Our latest report ‘Opportunities in Adversity’ contains case studies from Tandem, Forest, Muc-Off and Samudra Oceans who all found opportunities in tough times. It shows how adapting to changes, making smart pivots, and spotting opportunities in difficult situations can lead to greater business success.

Build resilience and improve cash flow

The path to entrepreneurial success isn’t linear – you’ll face your fair share of ups and downs along the way. There’s much we can learn from ‘phoenix founders’, a term to describe someone who found success after a previous business has failed.

You can’t predict when these periods of adversity will come, but you can prepare for them. Keeping a cash reserve within your business can help to protect its ability to absorb any shocks.

Without a substantial cash reserve in place, you might have to turn to short-term borrowing to keep your business afloat. And, with interest rates well above their long-term average, this could prove to be an extremely expensive way to run your business. Debt could begin to mount up and you might struggle to keep up with the interest repayments.

Every business is unique, so the amount you need to keep aside will be different to the next. As a general rule of thumb, businesses should have around three to six months’ worth of working capital readily available. Working capital is any stock and short-term debt owed to you, minus any short-term liabilities that you owe to other people, such as staff wages or loan repayments.

What can be learnt from businesses that have succeeded in the face of adversity?

Case study example: Muc-Off

Established in 1994, Muc-Off initially developed cleaning products specifically for bicycles. Over time, the company expanded its product line to include maintenance solutions for motorcycles and cars.

As the COVID-19 pandemic disrupted supply chains and changed consumer behaviour. Muc-Off introduced a new range of personal protective equipment to meet the increased demand for hygiene products. It also launched antibacterial sanitisers and cleaners tailored to address consumers’ concerns about virus transmission. This expansion not only broadened Muc-Off’s product portfolio but allowed the company to engage with customers beyond its traditional cycling and motor enthusiast base.

By leveraging its expertise in product development and manufacturing. Muc-Off maintained its operational stability and even found growth opportunities amid global economic uncertainties

How Charles Stanley supports entrepreneurs and business owners

At Charles Stanley, we are committed to supporting entrepreneurs through the good times and bad. We offer a comprehensive suite of services designed to meet the needs of entrepreneurs at every stage of their journey. Our holistic approach ensures personalised financial planning and investment strategies tailored to long-term success and financial security.

Looking ahead, AI, clean technology, and digital health are poised to drive the next of entrepreneurial growth and we remain dedicated to guiding our clients through these emerging opportunities.

Our latest report in partnership with Beauhurst, Opportunities in Adversity – Tough Times Make Brilliant Businesses, explores how various periods of economic hardship have created opportunities for the UK’s entrepreneurial ecosystem. Where others see problems, entrepreneurs see opportunities, meeting new demands or adapting their business models to better suit evolving needs.

Download the report