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Have you considered a diversified future?

Simon Underwood - Menzies Accountant

Simon Underwood – Business Recovery and Insolvency Specialist
DD: +44 (0)20 7465 1932

With many small businesses experiencing considerable financial difficulties, some have taken swift action to adapt their businesses to meet the needs of the market. So in these challenging times, how might your business adapt for the now to avoid insolvency and diversify for the future?

The UK business landscape is changing

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In recent weeks there have been notable reports of businesses attempting to turn their fortunes around by making considerable changes to their product offering and/or their way of working. For some, this has been a mandatory because revenue streams right the way down the supply chain have either shrunk or disappeared completely. For example, whilst the new stay-at-home rules are being acutely felt businesses in the hospitality, leisure and retail sectors, suppliers to these sectors, such as specialist food producers and wholesalers, are also feeling the effects of the crisis. So what can be done in response?

Can any business diversify?

Although it may not always be possible, all businesses should explore whether they can diversify or deploy their assets differently.

There are many great examples of how UK businesses have pivoted their offering including:

  • brewers and gin distilleries finding a new use for ethanol supplies by making and distributing hand sanitiser,
  • manufacturers with 3D printers making much-needed PPE and face shields,
  • and wholesale food companies and restaurants starting up home deliveries.

Meanwhile, businesses that already operate online have expanded their activity and introduced new products and processes in order to optimise revenues.

Depending on the nature of these activities, businesses may qualify for R&D tax relief, which can have a positive impact on cash flow at a critical time.  

Thanks to lower fixed costs, flexible lease arrangements, fewer people to manage and an entrepreneurial spirit, small businesses often have a predisposition to adapting quickly to a changing market. That said, the continuing uncertainty about how long the current crisis might last, makes long-term business planning more difficult. Diversification then could be a quick-fix solution, but will it work in the long run and can your business resource the changes required for a new world order?

Six diversification tests for your future business

number 1

Does it make financial sense?

For some business owners, this disruption could be the catalyst needed to rethink their whole life plan. But before deciding to bin the current business model, the business case should be weighed up very carefully. Consider the cost of doing nothing, versus the cost of diversification.

number 2

Know your core competencies

Want to diversify your business quickly? Then play to your strengths. For example, if your business provides dance, fitness or music classes, could technology like video conferencing enable you to continue despite not being able to bring people together under one roof?

number 3

Assess your assets

Do you have business assets that could be deployed in different ways? For example, a vehicle rental company could consider using its fleet to make home deliveries. The key test to consider is whether there is a market for the new service offering.

number 4

Do you have access to the right expertise and resources?

Before deciding to make changes to business operations or reaching out for a bank loan, it makes sense to understand whether you have the expertise and resources to make it a success. If you need to bring in additional skills or expertise to support the business, how will you do this and can it be achieved cost effectively?

number 5

Make the most of your investment

If you intend to invest cash reserves to develop a new product or new service offering, it may be possible to make a Research and Development (R&D) tax relief claim. Business owners may not be aware that making use of existing machinery to manufacture products that already exist – such as hand sanitiser, ventilators or PPE – could qualify as R&D because the methods and processes involved may not be in the public domain. Even finding new ways of using existing equipment to overcome technical challenges and create new processes, may be eligible for R&D tax relief.  

We recommend you speak to one of our R&D specialists to see if you qualify for tax relief.

number 6

Look for steppingstones

When considering a diversification strategy, business owners should aim to de-risk as far as possible. Sometimes it’s possible to open the door to a new market by making a relatively small vertical or horizontal step. If you run a training company for example, you could drill up or down by expanding your range of training courses, whilst a catering business could reach out horizontally by offering home-delivered cookery boxes.

Small business owners must make the most of their ability to react to market changes quickly to find alternative revenue streams. However in this time of uncertainty, it is important to continue to plan for market recovery and the long term.

Posted in Blog, Healthcare, Hospitality & leisure, Manufacturing, Not-for-profit, Property & construction, Retail, Technology, Transport & logistics, Recruitment, Legal Services, Financial Services