Business Start-Ups under the Current Economic Climate in Britain

Introduction

            Although Britain emerged from the recent 2008 recession, it is apparent that economic growth has been relatively weak and there are fears of a probable persistence of the global economic slowdown and “double dip recession. Economic output in the Britain has been relatively lower when compared to pre-recession peak recorded in 2007 (Barrow 2011). Economic forecasts indicate that unemployment in the Britain will peak during 2013 and during and it is highly likely that the economic growth may not return to the pre-recession levels until after 2014. In the wake of the current economic climate in Britain, businesses are the hardest hit by the impacts of the recession owing to the fact that the weak economic climate results in spiral effects that affect the variables in the business environment such as increase in unemployment, reduced interest rates and declines in the income levels of the consumers (Hall 2010). Nevertheless, the fact the economy has not yet fully recovered from the recent recession is not a sufficient reason for a potential businessperson to discard plans for business start-ups. However, it is imperative for prospective businesspersons to evaluate the risks and benefits of starting up a business at times when the economy is weak. The goal of this paper is to evaluate the risks and benefits of starting up a business under the current economic climate in the Britain.

Risks of Starting a Business in the Current Economic Climate in Britain

            The current economic climate in Britain does not give the impression that setting up a new business is an excellent idea. With gloomy economic indicators such as low interest rates, forecasts indicating the probability of a double dip recession and low unemployment rates, the chances of making a new venture a success are extremely slim. As a result, business failure is one of the substantial risks in the present economic climate in Britain. Research reveals that cases of corporate insolvencies tend to peak after eighteen months following the recession. Business failures are high because suppliers tend to embark on tightening their credit controls and chase the pending invoices (Landstrom 2009). This results in increased cash flow pressure, which is adequate to drive a new venture into insolvency. Similarly, tight economic conditions imply that consumers have little disposable income, which translates to reduced sales and reduced profits. In the current weak economy in Britain, it is apparent that the supply and demand variables of prospective businesses will be affected, which increases the risk of business failure for new ventures being established during periods of economic downturn. Business failure is a significant risk owing to the fact it has a high prevalence rate and adverse impacts on the continuity of new businesses established during periods of economic slowdowns (Hall 2010).

The current economic climate in Britain does not increase the risk of business failure but will also impose substantial strains on the business operations of new ventures. For instance, the economic slowdown translates to reduced sales and revenues, which implies that new ventures will be compelled to cut costs in order to improve their bottom line. Cutting costs may be detrimental for the new business ventures; for instance, efforts to cut costs may translated to using few employees, which translates to ineffective customer service; prevent businesses from acquiring new assets; and cut on marketing expenditures. All of these are critical success factors for new business ventures; however, the current economic climate will impose significant constraints on business as regards these business functions (Warner & Bethany 2009).

Another potential risk of starting a business venture during the current economic climate is reduced consumer access; this is because new ventures will have to cut on their marketing and advertising costs in order to stay afloat during these periods of economic slowdowns. In addition, the current economic slowdowns in Britain will result in bankruptcy and credit impairment for new business ventures. With a weak economy, customers are likely to pay the money they owe the businesses slowly, late, or may never pay at all. This cut in business revenues implies that new businesses will pay their bills slowly resulting in subsequent bankruptcy and credit impairment; this increases the risk of business failure if not managed effectively. According to Landstrom (2009), businesses generally face risks; however, new businesses in weak economies tend to suffer most in terms of the impact and prevalence of risks (Barrow 2011).

Benefits of Starting a Business in the Current Economic Climate in Britain

            Despite the potential risks of starting a business under the current weak economy of Britain, a number of advantages exist that new business start-ups can exploit to ensure that they survive. First, potential competitors in the weak economy have been weakened, which translates to a chance of the new business idea becoming a success. Another advantage is starting a business under the current tight economy is that the price of most things are relatively low because of the subsequent deflation. For instance, rent for office space, office suppliers and other assets can be acquired at relatively lower prices. Similarly, cheap labour can be accessed (Landstrom 2009). This results in substantial cost savings, which is a core requirement for new ventures to survive during economic slowdowns. The third advantage of starting a business under the current economy in Britain is that new businesses exploit credit unavailability to negotiate better terms with prospective suppliers (Hall 2010).

Conclusion

            The paper has discussed the risks and benefits of starting a business under the current economic climate in Britain, which is typified by a slowdown. Existing businesses have been significantly affected with the economic slowdown and most businesses have been forced to discontinue. With this regard, it is apparent that the chances of success for a new business is extremely small coupled with the fact that economic slowdowns tend to increase the risk of business failure. The prospective benefits do not make substantial contributions that can be used to overcome the risks. For instance, the cost savings from cheap materials and assets cannot offset the resulting bankruptcy and credit impairment that businesses are likely to face under tight conditions. Fundamentally, the risk of business failure cannot be overlooked under the current economic climate in Britain; thus, it can be argued that the risks of starting a business outweigh the advantages.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References List

Barrow, C 2011, Starting a Business For Dummies, UK Edition, John Wiley and Sons, Chichester, West Sussex.

Hall, J 2010, Can businesses afford to take risks in the current economic climate?, viewed 20 October 2012, http://www.simplybusiness.co.uk/knowledge/articles/2010/04/2010-04-01-can-businesses-afford-to-take-risks-in-the-current-economic-climate/.

Landstrom, H 2009, Pioneers in Entrepreneurship and Small Business Research, Springer, London, UK.

Warner, R & Bethany, L 2009, Save Your Small Business: 10 Crucial Strategies to Survive Hard Times Or Close Down & Move On, Nolo, Berkeley, Calif.