B2B Payments

Small Business Flexibility Tested In Ebbing Markets

The ebbs and flows of a volatile market are forcing small business owners to be flexible – so much so, says a new report from Direct Line for Business, that a new business model is forming.

Analysts call it the “balloon business,” as companies expand and contract along with market pressures. In its latest report, business insurance firm Direct Line for Business surveyed more than 50 decision makers at U.K. small businesses and found adoption of this business model is quite widespread: 74 percent of respondents said their companies are able to scale up or down depending on market pressures in an effort to protect viability.

The behavior highlights the potential for certain business decisions, like staff cuts or storefront closures, to be signs of strength for the SMB.

“Traditionally, business growth has been viewed as a linear process, but small companies are now incredibly agile, hiring contractors to meet demand and taking advantage of short-term leases to test the landscape and expand their footprint,” said Direct Line for Business Managing Director Jazz Gakhal in a statement, according to P2P Finance News reports on Wednesday (Aug. 29). “By adopting flexible working practices, they can quickly scale up or down their operations without putting the company’s survival at risk.”

As Gakhal explained, the scaling up and down of a business includes expansions and contractions of staffing levels and physical locations. Half of small businesses, and one-third of micro-firms, told researchers that their staff levels change as the year progresses. Increasing use of gig and on-demand workers makes staff count fluctuations even easier.

Businesses are also taking advantage of pop-up storefront availability and short-term leases, researchers noted.

While this malleability allows businesses to manage the peaks and valleys of the market, which has become increasingly volatile in the U.K. due to the impact of Brexit, small firms are facing the same fluctuations in their own revenues as a result.

“SMEs also highlighted a lack of consistent revenue throughout the year, with significant peaks and troughs,” the company said in its announcement of the research. “Many are diversifying into new areas to manage these pressures, with one in six planning to start offering a new product or service within their own industry in the coming 12 months.”

In another statement, Greg Carter, chief executive of alternative small business lender Growth Street, said the rise in balloon business, and the resulting squeezes in revenue streams, means companies must also have access to flexible financing.

“What businesses desperately need … is for financial services providers to adapt to [their] growth plans by delivering truly flexible finance,” he said, according to P2P Finance News. “We all know that banks don’t like giving businesses overdrafts anymore, but if a growing company experiences peaks and troughs throughout a 12-month period, as is often inevitable, why should it be lumbered with a lumpy, restrictive repaying schedule from a term loan, for instance?

“Banks who rush to foist invoice finance or term debt facilities on ambitious businesses don’t necessarily have the best interests of the customer at heart,” he added.

Still, separate reports in Yorkshire Post said these “balloon businesses” may be better able to cope with market volatility.

“Today’s small firms operate in challenging environments, but it is their agility and their ability to respond quickly to market opportunities and threats that enables them to survive and thrive,” said Kingston University Small Business Research Centre Director Robert Blackburn in a statement. “Hence, it is important that small firms are able to adjust their costs according to their requirements, rather than be burdened with a fixed outlay. Driving down the so-called fixed costs of the business is one way of achieving this.”

——————————–

LATEST INSIGHTS:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out the latest PYMNTS Digital Drive Report 

TRENDING RIGHT NOW

To Top