By Carl Hasty, Director of Smart Currency Business

You have likely heard of the spate of businesses being resurrected from administration following a corporate and director buyout. What you may not have considered is the underlying potential this demonstrates is evident in many struggling UK companies.

While half of start-up businesses fail within three years, labelling the economic climate as the bringer of doom is unrealistic — after all, the other half of businesses that succeed are operating in the same economy. Many are even thriving.

Instead, other factors must surely take the blame for these companies' woes, with their near collapse masking potential profitability. So what factors should SME operators consider to avoid facing the same fate?

Flexibility

In this global marketplace where change happens in the blink of an eye, standing still is no longer an option. Successful businesses are those which maintain flexibility across their operations and adapt to change. This covers everything from the products and services produced to keeping up-to-date with changes in technology and staff retention strategies.

Cost control

Cost-cutting is not simply a measure to cope with recession or trading difficulties. Continually striving to limit operating costs ensures that revenue is not wasted. This continual review should cover all business expenses, to ensure maximum value is achieved from every capital outlay.

Risk mitigation

In business, the old mantra “if it ain't broke, don't fix it” is a poor one to live by: generally, it is too little, too late to wait until something is broken before making amends. Treating cracks as they are discovered and implementing risk management strategies will help strengthen the firm's future position. For instance, how would significant currency movements affect the profitability of overseas sales? Would the sudden departure of a key employee result in the loss of critical skills or knowledge?

Perspective

An outsider perspective can be invaluable in keeping a business on the path to prosperity and market relevance. For SMEs without the big budgets to bring outside perspective in-house, this means engaging the services of specialist consultants and services well-versed in the needs of smaller businesses. For instance, a credit insurer can protect a firm's cash flow and monitor new business opportunities; a currency specialist can reduce the risk of adverse currency movements; and a growth management specialist can ensure sustainable growth.

Staffing

Like Goldilocks, finding the balance that is “just right” is crucial when it comes to staffing levels. The financial burden of too many staff can bring even a successful firm to ruin. While a skeleton staff affects productivity, the ability to take on new business - and leaves a company exposed when a key employee leaves. Headcount also needs to be balanced across departments to ensure that growth areas are adequately resourced.

Sustainable reach

Retailers have been a prime example of businesses over-stretching themselves in the pursuit of growth. Having expanded rapidly during the boom years, a long list of high street retailers have in recent years closed under-performing stores to ensure the company's survival. Corporate expansion should be carefully targeted towards profitable areas. As a business becomes more established, it can then attempt more risky expansion options, but even then, should not take on risk so great as to threaten the company's very survival.

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