According to research from PR agency CommsCo, 83% of tech leaders are worried about an imminent recession. The data revealed that 37% believe the uncertain economic situation poses the biggest risk to their business. This was followed by retaining key staff (26%), which was the topic of a recent tech blog, see here.
Other key findings included:
- 77% believe a recession will affect investment in the tech market
- 49% have increased the cost of services to mitigate the effects of a recession
- 47% are reducing marketing spend.
However, the more upbeat news is that 59% are optimistic about the prospects in 2023, while 52% plan to expand during the next year.
So what can you do to ensure your UK technology business navigates the choppy waters ahead?
Start with an assessment
While the new headlines are dominated by economic doom and gloom, it is worth remembering that many successful businesses were born in times of crisis. For example, Uber and Airbnb were founded during the 2008 financial crash and Google managed to source vital investment in the wake of the dot-com bubble
While the airwaves and social media channels are filled with general business advice, every company is different. The most pertinent and practical advice will be tailored to your specific circumstances, which is why an accountant that understands your business can be so important in times like these.
Before you can make a plan and any informed decisions, you’ll need a thorough assessment of your situation. Ask yourself some tough questions, including:
- What is your current cash runway?
- What is your current burn rate?
- Will you require investment?
- What are your key revenue drivers currently?
- Do you have other possible revenue streams?
- Are there any non-profitable products or services, or spending that isn’t necessary or providing a return on investment?
- Are your products right for the changing market?
- Are your current objectives and growth plans still achievable?
- Who are your key team members to reach these objectives?
Monitor Your KPIs Regularly
Once you have performed this assessment, you should continue to monitor these key financials (and non-financials) on an ongoing basis to allow you to be agile and make informed decisions quickly. For example, by performing an assessment, you may have identified that you need to:
- Reduce your Customer Acquisition Cost (CAC)
- Reduce your customer churn and retain a certain level of customer satisfaction (e.g. a Net Promotor Score)
- Reduce accounts receivable days and bad debt
These key KPIs should therefore be included within your management reporting so that you can continuously monitor them and hopefully drive positive change in your business operations.
Plan ahead
Cash is king may be an old cliché, but liquidity becomes even more important in a recession. Cashflow forecasting can be a useful way to identify any future financial issues and to get a picture of your cash runway, that is the number of months you’ll be able to operate before raising funds.
This can be even more useful when you layer in scenario planning, which forecasts your financials if certain events take place or conditions apply, such as:
- An overall drop in sales or losing certain contracts
- An increase in client churn
This can also be used to aid decision-making, such as reviewing forecasts when certain actions are undertaken e.g. hiring new staff or increasing marketing spend. A rolling forecast will help keep you and your management team aware of financial risks before they become a reality.
Seek the right investment
Whilst many investors and lenders are understandably nervous and more cautious, making it more difficult to raise funds in the current climate, this may be required to increase your cash runway or to fund growth plans.
However, you should explore all your financing options, including grants, R&D credits, asset finance, crowdfunding and venture capital. Seeking the right investment involves a lot of preparation, including a business plan, detailed cap table and financial forecasts. These deals can also take time, so funds should ideally be raised when the business is still in a comfortable position, not at a time of distress.
The next step
Whether you need help with management reporting, forecasts or general advice, our tech team will be happy to help. Please contact Dave Hailey at d.hailey@uhy-uk.com or your usual UHY adviser.
