There are some situations and factors that are out of control for even the best managed of companies. Situations that could threaten the stability, profitability and even viability of a company. We explore some of these untouchable business threats below, and provide a few possible solutions to boot.
1. Government Tax Changes Directly Impacting An SME. There are several taxes that a company has to stump up beyond just corporation tax on profits. Corporation taxes are only payable by companies in profit, so modest increases in corporation tax are unlikely to threaten the very existence of a firm. Other taxes could – National Insurance for example is payable on every employee who attains a certain payroll status within the company, and business rates are a form of tax that can be quite brutal in stripping a P/L of its “P”! Governments and economies change – and with them the taxes that are levied on business change also. Always account for different scenarios when drawing up your business plans and budgets. This should help provide more elasticity for comfort should taxes increase sometime in the future. Finally, if paying National Insurance is a problem, consider hiring more freelancers or outsourcing some roles.
2. Interest Rate Changes. Now and again, the Bank Of England will announce changes in the base interest rate. When the base rate rises it can have a significant impact upon any variable interest loans the company has on the books. One single 0.25% increase can most likely be weathered by most companies – however, a succession of short and sudden increases in the base rate could leave a highly geared company struggling to service its debt. Taking out fixed interest rate loans is one way to negate against potential rate rises in the future. Interest rate hikes can also provide a challenge should your company require bank funding in the future.
3. Exchange Rate Risks. Exchange rates can move meteorically from one year to the next, and this can be a highly risky situation for companies that sell overseas. When a firm is a major exporter, it can be prudent to take measures to hedge against severe exchange rate fluctuations. If for example the exchange rate changes by 20% from one year to the next, this could well turn a fundamentally profitable company into a loss making one. Some companies that export overseas on a large scale employ a technique known as hedging in order to protect against exchange rate risk.
4. Unpredictable Global Shocks. It’s often referred to as a sigma 3 event in the world of finance, but now and again the global economy will simply implode. It has happened throughout history, most recently during the financial crisis which kicked off in the late naughties. When economies seize up on a wide scale, consumers simply lose confidence and spending can fall off a cliff edge. This tends to have a knock on effect, with companies also shoring up spending and laying off staff. For a company this can be a tough time – again the importance of variable scenario business calculations, and good management are the only way out when such situations occur.