Firms need to be flexible to bounce back
Businesses in the West Midlands need to keep costs as variable as possible, building in as much flexibility as they can, in preparation for an upturn in market conditions, enterprise experts at PricewaterhouseCoopers LLP (PwC) have said.
Many small and medium-sized businesses in the region have been keeping a close eye on costs since the onset of the recession and have taken steps to reduce them where possible.
Some have been forced to reduce the size of the workforce on more than one occasion in order to reduce fixed costs and keep the business afloat.
While the economic uncertainty continues, small and growing business specialists at PwC in the Midlands are seeing a subtle shift in cost management behaviour.
Neil Philpott, entrepreneurial business expert at PwC in the Midlands, said: “While cost concerns remain paramount and all costs are closely scrutinised, some entrepreneurial businesses in the region are putting cost considerations on a more positive footing – building in flexibility to enable the business to move quickly to capitalise on market opportunities as and when they arrive.
“Focused more on the medium term, this more positive cost management approach is evident in the way businesses are increasingly prepared to not only consider whether decisions are good for the cash position of the business but whether they add flexibility too.”
Well-managed companies in the region are continuing to keep costs under review while looking for opportunities to make fixed costs more variable. In doing so, they can keep the business recession-proof while positioning it for growth.
Mr Philpott added there were many opportunities to keep costs flexible.
“Small and medium-sized businesses, particularly those that are family owned, often have a more supportive workforce who understand recessionary pressures and are prepared to support the business through them by accepting reduced working hours and deferred pay increases,” he said.
“These measures are likely to continue in 2010, along with increased use of flexible staffing in order to boost skills capacity where needed.”
Property terms and arrangements were also becoming more flexible, he added, as companies sought to take opportunities to renegotiate them at the point of renewal.
“In many cases, it is possible for businesses to reduce the length of property leases or include lower penalty clauses for early redemption and this can be an important factor in reducing risk when assessing expansion opportunities,” said Mr Philpott.
Other fixed costs that can be renegotiated and agreed on more flexible terms include leased vehicle fleets, plant or equipment hire and even mobile phone contracts, he added.
For some forward-looking businesses, there may even be an opportunity to outsource back office services, such as IT or logistics, in order to maximise flexibility.
