SMEs, Supply Chains and Survival - 1. Supply Chain Shocks

By Tim Boag, Group Managing Director, Aldermore Business Finance.

These are challenging times for UK SMEs. Over a series of three articles, we investigate ‘SMEs, Supply Chains and Survival’ and explore the opportunities that can arise in changing times.

As the haze of last year’s uncertainty starts to clear, UK businesses can be strategic once more. We now have a majority stable government and are leaving the European Union. This clarity will allow SMEs to plan, invest and focus on remaining competitive, following a year of conjecture and procrastination. My suggestion to SMEs to survive – and thrive – during these times of change is to thoroughly understand supply chains, plan for possible disruption and be on top of funding and liquidity

In my opinion, SMEs will play a crucial role in supporting the UK economy.

2020 will be a year of transition, as the terms of our future trade relationship with the EU take shape. Meanwhile, pivotal questions remain for SMEs: What will these trade terms look like? Will exchange rates fluctuate? How will this impact cashflow and deliveries? Above all, what behavioural changes will be necessary to stay ahead?

I believe our entrepreneurs are resilient and adaptable; they will find a way through these uncertain times.

To do this, SMEs will need to be open to change and prepare for change – in particular, in relation to their supply chain management. According to our new research, 51% of UK SMEs have suppliers or customers in the European Union* – and yet, many should do more to understand their supply chain fully. SMEs should examine official transition guidance, investigate their current relationships and assess if they are still mutually advantageous in a post-Brexit world.

Nearly half (49%) of SMEs do not have contingency plans in place should their biggest supplier fail.*

With this in mind, one in 10 SMEs believe they would not survive disruption to their supply chain.* SMEs therefore need to ask themselves: Do I understand my European business relationships inside out? Am I prepared for any operational changes that might come my way, or affect my suppliers? Am I overly dependent on one supplier or market?

Only 38% of UK businesses have commissioned a supply chain audit.*

This shows that SMEs may not fully understand the potential risks. Regardless of the political and economic landscape, contingency planning should take centre stage to minimise disruption from potential changes. In a period of uncertainty, everyone needs to prepare for the worst, in case the current modus operandi changes suddenly. This will help mitigate damage and allow entrepreneurs to focus on their day jobs.

In these choppy waters, funding and liquidity are the lifeline these SMEs need.

From a financial perspective, liquidity is more important than ever. Small companies continue to bear the brunt of a culture of late payments, which can threaten to derail them.  Savvy funding, such as asset and invoice finance, will give SMEs the flexibility to pursue their plans for growth. It’s all about optimising financial capacity. Often businesses feel they are at the whim of external factors. It’s prudent for businesses to speak to funders and safeguard themselves against these, in order to look ahead.

I understand it’s easy to become consumed with the day-to-day, but dedicating time to the big picture is key.

I firmly believe that with challenges come opportunities. Most business owners and entrepreneurs do what they do, very well, with passion and enthusiasm and that’s unlikely to change. SMEs are resilient and if they don’t leave it too late, they’ll find a way to move forward. There will be new markets, suppliers and trading relationships that haven’t been pursued before. These are unnerving, yet paradoxically, exciting times for UK businesses, as we all adapt to a new norm.

*All statistics are based on Opinium Research, conducted between 10 and 20 October with a nationally representative sample of 1,051 senior decision makers in UK SMEs

Tim Boag is Group Managing Director of Aldermore Business Finance.