For the first time in decades, the world economy enters a potentially prolonged period of economic uncertainty - not simply because of Covid-19 and the war in Ukraine. The last two decades saw developed economies, including the UK, enjoy a goldilocks-like environment of universally low and stable inflation and interest rates, only occasionally interrupted by painful but temporary calamities such as the Global Financial Crisis and Brexit.
Today, the effects of de-globalisation and an abrupt reversal of monetary policies by the world's largest central banks have created a volatile mix that is causing financial industry leaders to raise their alert levels to “cloudy with a chance of hurricanes”. Risks from geopolitical realignments between countries and continents abound. Central banks are reacting differently to unprecedented stagflation. And the very real twin threats of a global energy squeeze and a food supply crisis is on the front pages of mainstream media. This makes the current business environment feel like a war zone, and many of these problems will play out over years.
It is never easy to grow a small business, especially in times like these, and small and medium-sized companies (SMEs) will need more help than ever. Businesses in the UK will have no choice but to trade more internationally – in the same way their predecessors did for centuries. Hopefully, the government’s ambition to regain Britain’s position as a stalwart of global trade will mean more public support for entrepreneurs aspiring to trade more across borders. If this support is aligned with efforts by accountants and innovative software providers, more businesses will be able to reach their ambitions and compete globally with their larger corporate peers.
Economies of scale have always been an unfair advantage used by multinational corporations - including the resources available to help them safely do business anywhere and no matter what the external environment. Most have developed robust risk management policies, frameworks, and processes. Those who did not do so have the power to make their customers pay a hefty price - "P&G defends no-hedging policy, insists customers will pay for $2.3bn commodity hit”. Small businesses don’t have the same privileges, but new technologies are helping level the playing field. As long as the companies and their accountants are prepared to embrace them.
In Chinese, the word “crisis" 危机 also means “opportunity”. Some of the world's best companies were born during crises - such as FedEx (1971), Microsoft (1973), Uber and Airbnb (2007-09) in the US, and Sage and JD Sports (1981) in the UK. Today accountants have a fantastic opportunity to help their clients grow with robust planning and analysis and guide them through the perils of the VUCA (volatile, uncertain, complex and ambiguous) world. Risk management is an integral part of good management accounting. More can be done for SMEs today by leveraging increasingly digital data from cloud accounting, predictive analytics and scalable technologies that put risk-management solutions within the reach of even small businesses.
Whether it is an exposure to foreign currencies, prices of raw materials, or interest rate hikes - small businesses want to know what this means for their future cashflows. Furthermore, business owners and directors want to know what to do to protect themselves against the risks their businesses face. Giving them the right technology and advice helps them grow safely and goes a long way towards forming a long-lasting, trusted relationship with more successful clients.