Small Business Owners: What to expect from 2011

James Wilson, Marketing Director at XLN Telecom, looks ahead to the pitfalls and opportunities of the new year.

A new year looms ahead and quite naturally every business owner begins to wonder what lies in store for them over the next 12 months. Of course, short of a working crystal ball with a de-misting feature such predictions are tricky. Nevertheless, certain changes to the economy are likely to affect pretty much every business owner in the coming year:

  1. Squeezed by your suppliers

RPI price inflation is at 4.7% which means your suppliers are likely to want to increase their prices to protect their margins. In certain sectors such as food or transport, price increases may be even higher.

You need to start factoring in these increases as soon as possible and make difficult decisions about how hard to negotiate with your suppliers. If you have been putting off evaluating new potential suppliers, now is the time to make sure all your options are on the table.

  1. Difficult conversations with your customers

With VAT increasing to twenty percent from 4th January, all customers paying VAT will be looking at a two and half percent price increase to wash down with their Alka Seltzer.

And its not just taxes. You will face the rock and hard place logic of passing on the RPI increases from your suppliers onto your customers. Will they swallow an increase as par for the course? If passing all your cost increases on looks impossible, exactly how much can they bear?

Timing is an important issue here too: pass cost increases on too eagerly and you risk driving your customers into the arms of your competitors. Wait too long and you risk a cash squeeze. Whichever way you go, tricky conversations with your customers are a certainty in 2011.

If your customers are government run, there will be even greater problems as spending cuts bite deep in the first half of the year.

  1. A battle for every customer

With price rises and low growth on the horizon, you can bet your customers will be evaluating all their options too. Even long standing customers will be forced to weigh you in the balance, with uncompetitive prices being the concrete block you don’t want on the scales with you.

Currency factors will come in to play if you export. It’s difficult to predict whether the pound will rise (as interest rates look likely to go up to squash inflation) or fall (as growth may suffer due to government spending cuts). But you need to be quick off the block in adjusting prices and terms for overseas customers as even slight changes either here or overseas could lead to large currency swings and your competitiveness could suffer – or increase -dramatically.

  1. The beginnings of new growth

Although 2011 looks like doom and gloom, the end may well be in sight. Since 2007 it has taken a hardened optimist to see the silver lining hidden amongst the economic clouds. But things look different this year. The first half of the year will be hard with difficult decisions on every front. But the second half of the year should be more promising as inflation eases off and growth increases. Government spending will be down in the first half, but lots of essential spending will simply be delayed into the second half. And even overseas markets may rebound a little as currencies stabilise.

The second half of the year will be the time to evaluate new markets and opportunities as you look ahead to the potentially bumper Olympic year of 2012. Markets will still be depressed in late 2011 so it will be the perfect time to run a new low-cost marketing drive. Unemployment will probably be creeping up so it could be a great time to hire some new staff at a good rate.

So, 2011: a difficult start but opportunities towards the end. Now where shall I put my crystal ball until next year?

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