Can an Organisation Grow During a Recession?

There is growth all around us, even as the country stands on the precipice of an economic downturn. Whilst some companies, particularly those with high levels of debt, are particularly vulnerable to recession, others continue to thrive. Despite a changing economic landscape, with rising prices and insolvencies at an all-time high, it’s not all doom and gloom. Growth is present – you just need to know where to look.

We speak to Dr Nicola Headlam, Chief Economist at Red Flag Alert and Director of Growth Flag, about the growth she’s seen in specific areas of the UK, and how technology can be utilised to protect themselves from risk, increase productivity and drive sales.

“If you have people in your business, which everybody does, then you want to be a good employer and meet the cost-of-living rises, whilst also keeping yourself afloat… It's a little bit like you’re ice skating on fire backwards,” Nicola Headlam

Is it possible for organisations to grow during a recession?

Absolutely.

As one of the UK’s premium business intelligence companies, our datasets (including the brilliant Growth Flag) are granular and show the real big differences happening, both by sector and spatially in terms of growth and distress.

We are a good example of a company growing in harder economic times; Red Flag Alert has grown 41% a year for the last two years, despite the sluggish growth in the wider economy.

That’s not to say that macroeconomic context isn’t important. The cost of energy has had a huge impact on all UK businesses, and the cost-of-living crisis hasn’t just impacted normal day-to-day living, but also the costs associated with running a business – it’s much more expensive to keep lights on, as well as other overheads.

Our data indicates between 26,000 to 28,000 businesses are heading for insolvency this year; however, we understand the social-spatial challenges and are prepared to meet them head-on and help other businesses do the same through harnessing the power of data through our platform.

Even in the recession, some sectors are high gross, and our data points all this out. We strongly advise doubling down on your core – know what you’re about and doing it better than everyone else.

In short, don’t listen to the news moaning about GVA and GPT not going up. There is a climate, but it’s just those headwinds that make everything a bit more difficult. There is finance out there for businesses and there will be huge winners this year no matter what happens in the macro economy.

A lot can change depending on interest rates, inflation etc., but we’re focused on helping companies get on with business as usual.

Portfolio monitoring, AML & IDV

The KYB and onboarding process make sure that your supply chain is doing everything they can to protect against risk. If you want to do business with someone, and you learn they aren’t protected from the risks of the wider economy from our data, then you may want to think twice about working with them.

Last year we forecasted 6000 construction companies going bust, which resulted in a billion pounds of debt snowballing out of those companies. The supply chain of a construction company doesn’t stay exclusively within the construction sector, there’s overlap with clothing, vehicles, etc., meaning this debt spreads to all sectors of the economy.

At a minimum, every business should have a company monitoring portfolio containing anyone you trade with, up or downstream. This includes your supply chain network, customers, and people you’re extending credit to. The tightness of the economy means that you need to constantly be keeping everyone including prospective and existing customers under review regarding the credit limit.

You can decide the amount of risk you want to be involved in your business by monitoring who you work with. It’s entirely possible to have a thriving business with loosened models, but the only model you can’t work with is ignorance: so, learn everything you can about your supply chain/customer base.

We’ve got all the tools you need: receive real-time updates and alerts on company changes using our monitoring portfolios, find in-depth company reports with unique insights, and perform AML Checks & IDV checks all without leaving the RFA platform.

Looking for finance?

If you’re lucky enough to be able to need finance to meet your growth aspirations, there is still capital out there. However, valuations are currently more difficult, and due diligence processes take longer as businesses thoroughly assess risk.

Here at Red Flag Alert, we recently took on a series A investment, but be warned: every step of the process is under a lot more scrutiny due to the current climate. To help get through the investment process easily, you need complete access and control of every piece of data that always affects your business – there are good lenders and brokers still there!

NACFB has lenders that operate at all price points, largely for SMEs. In addition, NACFB members have access to our tools to help prospect their ideal customers. Whilst high street lending has gone down, the amount smaller lenders and brokers lend has been going up. Before the pandemic, around seven in every ten pounds being lent wad from by big banks, now it’s more like three in every ten pounds.

Our product shows, if a company has a strong growth score, they’re very likely to grow, and if a business has a few red flags then they’re very likely to go insolvent. Using the algorithmic base we have at Growth Flag, we’re shown time and time again: that even if something doesn’t look great short term, it might be better long term.

However, lending shouldn’t just be based on historic performance and growth propensity, but on if they’ve got good products, great ideas, or good people, that’s what will end up being the contributing factors towards a business’s future performance. These are the things you’ll want to showcase during the investment process.

What is a zombie company?

One thing we often talk about in a recession is to watch out for zombies.

A zombie is a business that can pay its wages and tax bill etc. but isn’t showing any signs of growth, for example, our big retail whales are quite zombified. There was an argument that zombies crowded out other businesses from getting finance, however, I’m not someone who says kill the zombies, due to the sheer amount of employment they offer.

It’s very hard on the high street now so retail is suffering (e.g., Wilko's financial distress). There’s been a broad switch since the pandemic away from B2C to B2B sales in the economy. In terms of GDP, a gross value added of three percentage points has moved from consumers to businesses, which is massive partly because consumers have less money.

If you are selling B2B, this problem won’t hit you as hard. Goldman Sachs, for example, is moving out of their high-net-worth consumer-facing products and doubling down on providing financial services and business advice.

In summary…

With a bit of self-belief, not panicking, a strong focus on your kind of intrinsic value, and armed with knowledge of your growth propensity, position within your core market, supply chain and customers, you can keep your business safe and even experience some growth.

There will be big winners, no matter the economic climate, but it’s part of our job to keep looking and seeing where the losers are as well.

It’s dangerous out there, and the best thing you can have is Red Flag Alert in your pocket to make data-driven decisions. The more data you bring to the functioning of your company, the better your chances.                                 

Is there any final advice you’d like to offer businesses?

All sectors are a bit ropey right now so there’s going to be good and bad business, however, whether you’re B2B or B2C is important as B2C is currently suffering the most. That might flex back once consumers have more money, but enormous shifts and changes are occurring that you must stay on top of to stay in business.

Whilst GDP is not growing, spatial and sectoral shifts are occurring, and we can track it. Don’t confuse a potential technical recession with everything going on, there are a lot of different parts shifting and moving; Some companies are doing better, some worse, and it’s all a very complex picture, making it a dangerous time to be unaware.

To find out how Red Flag Alert can help you grow during times of economic downturn, get in touch with us. You will gain access to valuable data and technology, such as:

• Exports of sales data and company reports
• Unprecedented visibility of UK SMEs
• In report analysis tools
• Full director and POSC information
• Full company history
• Easy-to-understand group structure information
• User bespoke portfolio monitoring
• Fully compliant AML and enhanced due diligence checks suite

Access your seven-day free trial of Red Flag Alert today to see how our software can help you.