According to the British Chambers of Commerce (BCC), the UK economy is “stuck on a low-growth treadmill”. Citing a GDP rise of just 0.2% in the three months to February, the BCC saw “little sign of the landscape changing soon”.

The Office for National Statistics showed that 22% of trading UK businesses reported a decreased turnover in March, compared with the previous month. In April, the figure was 21%, the gloomy trend holding steady. While more recent figures showed better-than-expected economic growth, it was still from a low base. 

For businesses on the ground, this low-growth environment poses significant challenges when it comes to planning and budgeting.

Tracking success

In a more favourable economy, you can invest in areas that pay less of a return, says Laura Beales, ICAEW member and Co-Founder of office space specialists Tally Workspace. At a time like this, each department needs to run on metrics that filter down beyond the level of revenue to profit-and-loss. Even ‘support functions’, such as the tech team, have profit and loss accountability.

“A lot of what we’re doing is to ensure that the metrics that go out to each department hold them accountable to the bottom line,” she says. 

Marketing is one example of how that approach takes effect. “We’re focusing more on activities that have clear metrics and where you can track success,” Beales says. “With paid ads, for instance, there’s transparency the whole way through. You can see what you paid for the ad, which leads it generated and even the amounts the resulting deals closed at. So, it’s far less about brand building and generic, ‘top of the funnel’ methods, such as ads on the Tube – which are great to look at, but have no real tracking.”

Gareth John, Director of accountancy training provider First Intuition, says he has operated businesses through economic ups and downs for many years. “For me, the challenging times actually provide a great education and instil useful discipline. They make you look at everything in much greater detail and see where inefficiencies lie.”

For John, the most crucial area for owners to pay attention to at a time of low growth is revenue. “Think very carefully about the assumptions underlying your projections,” he says. “That includes pricing, volumes and even the pattern of sales throughout the year. Are your assumptions still accurate and relevant in current conditions? Perhaps you modelled them back in the economic glory days and you need to rethink them. If revenue is coming harder, you must take a more critical look at where it’s coming from, and how it’s being driven.”

Measurable returns

Beales and John agree that in the long run, knee-jerk cost-cutting measures are rash and unhelpful.

“You must be careful not to just zero your spending on things that don’t necessarily yield a clear, trackable return,” Beales says. “Instead, ask yourself how much you’re willing to spend on those things, so you’re putting a clear cost on them, and whether you can cover that cost with the business activities that do bring in more measurable returns.”

John says that at a time of low growth, his instinct is to go “almost the opposite direction” to cost cutting, while being more strategic about how spending increases are deployed. One area where he thinks companies can justify raising their spending is in their business development (BD) resources.

“You could recruit more BD or client relationship managers,” he says. “You could spend more on marketing, while being more careful about where that spending goes. We’ve just been through a process in recent months of looking at various marketing channels we use and events we sponsor and support, and thinking about which ones deliver tangible results. We’ve also reviewed the business networks we belong to and thought about which ones have a real impact for us.”

In a flat economy, John stresses, companies must work harder to achieve growth – so BD and sales are obvious targets for investment. “They are also key areas for revisiting those assumptions about what drives increases in your revenue.”

Another reason to be wary of knee-jerk cost cutting, he notes, is that it “generally involves reductions in the quality of your offering, which you may come to regret later”.

Constant adjustment

John says that going against the grain of current conditions hinges on frequent planning, forecasting and re-forecasting. While the business has plans in place for the next two years, John and his team carry out reviews at least once a month. “That enables us to be confident that we will have the cash reserves to support our longer-term goals,” he says.

Beales agrees with that approach. “It’s about making sure you are regularly tracking your metrics, so when things are working, you’re continually investing in them. Not just coming to the end of a quarter and saying, ‘Oh, X went well – now we can invest some more in it.’ In this environment, you have to be more iterative. That entails constant learning and adjustment, as well as experimenting with different things.”

While Beales acknowledges that monthly forecasting and re-forecasting is much more time consuming, she is clear in the view that it saves businesses money. “If you’re bringing in your teams and really questioning them on their spend items,” she says, “that helps to secure their buy-in to the profit-and-loss journey and bake them into your end goals.”

John adds that his company is increasingly using bottom-up approaches – different departments and teams develop their own budgets, acting as business partners to the finance team, which gives them support. “That helps them to maintain a strategic focus, while keeping an eye on the details.”