Navigating Growth Amid Economic Uncertainty: The Path Forward for Businesses

Despite the UK entering a recession in late 2023, there is now reason for optimism. Forecasts suggest that a combination of rising consumer activity and falling inflation will support modest growth for the remainder of this year and into 2025.

While any positive forecast should be welcomed, on a practical basis the constant change in interest rates combined with general economic uncertainty is causing a lot of indecision for businesses.As a result, many business leaders are finding it difficult to assess their best strategies for growth. All this ambiguity, combined with a new government in Number 10, which is still setting out its stall on regulation, leaves businesses with more questions than answers. With so much unpredictability, how can organisations plan for the future without staying stagnant? The key is cash-flow management.

Treading the Economic Tightrope

Over the past year, UK businesses and consumers have navigated a rollercoaster of economic highs and lows. Despite interest rates reaching a 15-year high, growth accelerated towards the end of 2023. In response to these fluctuations, businesses have understandably been cautious in their spending and investment. Research found that 76% of businesses are missing business transformation targets, with 67% scaling their plans back as a direct result of macro-instability. This is compounded by further drops in hiring activity at the start of 2024.

Businesses are left deciding what the best course of action is. They can either continue cutting costs but risk falling behind competitors if the economy doesn’t get worse, or, they can invest now but pay a serious price if the UK falls into another recession. This dilemma is leaving businesses hamstrung, having to prepare for the worst and hope for the best. With their hands tied, the one proactive step organisations can take to nullify damage from any economic scenario, is to ensure that their finance department is prepared to predict cashflow and able to forecast for any eventuality. Business leaders can’t expect to weather a recession, let alone take advantage of opportunities when they come, if they don’t have a transformed finance function.

The Dilemma at Hand: To Grow or not To Grow?

An essential part of not only preparing for but also surviving a recession is recognising opportunities for growth. Some business leaders are beginning to explore ways to invest the capital accumulated through cautious strategies. Astute leaders are even investigating how to capitalise on a risk-averse market to gain an edge through innovation.

In an ideal world, businesses would welcome increased spend on transformation and innovation with open arms. However, in reality, caution is required. Organisations must establish priority areas for transformation and growth, but crucially they need to precisely identify how that spend will impact cashflow over the next year and into the future. While businesses need to avoid stagnation, they cannot rush headlong into spending. They must thoroughly understand how various scenarios could affect their cash flow and bottom line.

However, organisations won't generate meaningful data or insights by merely digitising basic financial processes, like emailing invoices instead of printing them. To truly understand and predict cash flow changes amid varying investments and economic fluctuations, intelligent automation and AI are crucial. For instance, finance leaders can monitor customer payment behaviours, ensuring investments are made when payments are likely to be received, rather than based on fixed payment periods, thereby reducing the impact of late payments. Additionally, predictive analytics allows businesses to more accurately determine creditworthiness, identifying safe customers from risky ones. Lending credit can boost cash flow and take advantage of economic downturns, but it also carries risks. Analytics insights help pinpoint reliable customers and avoid potential defaults.

Without AI and predictive analytics, businesses won’t be able to assess their opportunities for growth and may not be able to survive a recession, let alone thrive in one.

Strategies for success

Although the UK is no longer in a recession, the current economic state leaves plenty of unknowns about the real-world impact on businesses. One thing is for sure, in today’s demanding and competitive environment, organisations cannot afford to remain at a standstill. However, it’s not the time to abandon caution. Businesses must see their finance teams as crucial assets in preparing for a recession and to emerging stronger. Finance leaders are key to helping the wider business achieve growth goals sustainably. Now is the moment to futureproof the business, no matter what challenges the economy may present next.