An uncertain economic environment requires a more flexible approach to recruitment, underpinned by the right type of funding.
Many SME leaders face a difficult dilemma right now: while their businesses have been growing steadily over the past year, they’re anxious about what lies ahead, given the uncertainties of the post-Brexit economic environment. New research from the CBI shows SME optimism fell sharply in the wake of the referendum result in June. In which case, do they invest for further growth, or hunker down?
That dilemma is particularly acute when it comes to hiring new employees. If your business is expanding, you’ll naturally want to consider taking on new staff, but can you be confident there will still be work for them in, say, six months’ time? After all, a new member of staff represents a long-term commitment and the cost of hiring is rising – the Federation of Small Business says many SMEs have already had to change their recruitment plans following the introduction of a much higher national minimum wage earlier this year.
Close Brothers’ own research suggests the question of whether or not to hire is exercising many SME leaders’ minds. Our latest Business Barometer suggest that while 70% of SMEs are now expecting to see economic growth, many also fear this growth will be slow, or that downside risks could resurface. As a result, they’re in two minds about hiring: only 35% of SMEs in the research say they definitely intend to take on new employees over the next 12 months.
David Thomson, CEO of Close Brothers Invoice Finance, suggests SMEs facing this balancing act need to give themselves some room for manoeuvre. “SMEs don’t want to miss out on growth opportunities because they don’t have enough staff to exploit them, but they may need to think more imaginatively about recruitment,” he says. “It’s also crucial to ensure that the funding you have in place to support your growth is flexible enough to cope with uncertainty.”
For Reg Roberts, the chief executive of recruitment company Target Recruitment Solutions, it’s that second point that is crucial – he has been using invoice finance for more than 15 years to support his company’s growth with flexible funding that works through different economic climates. “I’ve found it highly efficient and personable,” Mr Roberts says. “It’s been a great product for growing my business as I’ve gone from half a million turnover to £4m.”
More broadly, there are a range of options for recruitment that may enable SMEs to balance ambition and caution. Hiring new employees on a fixed-term contract, for a particular project, is one possibility. Temporary employees, freelance workers and even zero-hours contracts are all potentially useful ways to staff up for an increasing workload if you’re not sure the extra work will persist. There’s nothing to stop you offering these workers permanent jobs in the future, once you’re convinced demand is sustainable.
SMEs that feel uncomfortable hiring new staff also need to work hard to make sure they’re getting the best out of their existing workforce. For example, more than one in two businesses in the Close Brothers Business Barometer (52%) say they have sought to address skills shortages by investing in staff training. That makes sense: an engaged workforce, where workers feel they are supported in improving their skills, will be more productive.
Again, it’s vital that SMEs have funding in place to maintain investments such as training and other forms of staff engagement. Such activities may be a soft target when your finances are under pressure, particularly if the rigidities of traditional forms of finance leave you with cashflow or working capital problems. However, neglecting the workforce, whether new or existing employees, will very quickly damage your business.
Take a look at our latest infographic: SMEs must prepare for growth in a post-Brexit economy