Given the challenges that firms have had to overcome during the past two years, an ideal world would see them sailing through 2022 problem-free, without a single obstacle blocking their course.

Reality however, has a different idea and the new year brings with it new challenges – but also new opportunities for successful SMEs to thrive.

In response to the pandemic, we have seen firms completely transition their business models, pivoting to serve new customers and markets. We have seen organisations invest in technology and innovation, enhancing their offering and winning new business. For others, it has been time for their leaders to exit, but this has only led to a more energised funding market, with firms seeking finance for M&A, MBOs and MBIs, as well as conventional growth.

The takeaway is clear: firms can still thrive in the face of adversity, but how they prepare themselves for these challenges is what gives them a head start. The first step is knowing what to prepare for, so we take a look at some of the key challenges SMEs are likely to face during the next 12 months…

1 – Covid-19 hangover

The overall outlook from business leaders seems more positive now than it did in January 2021 and on a colloquial level, we are seeing the market bounce back quicker each time a new variant rears its head.

However, Covid-19 is very much here to stay. Firms should remain vigilant to ongoing challenges, such as the working from home debate and a self-isolating workforce and be prepared to react to changing regulations.

2 – Inflation

The UK Consumer Price Index (CPI) hit 5.1% in November for the first time in a decade and is expected to remain this high until April, when it’s likely to increase again.

This impacts the cost of goods, services and labour – with firms having to choose between decreased margins, or passing this cost onto their customers.

As always, cash flow is king – successful firms will already be thinking about ways they can maintain sufficient working capital.

3 – Interest rates

The Bank of England voted to raise the base interest rate from 0.1% to 0.25% in December, which means the cost of borrowing could be set to increase – particularly for earlier-stage firms that have fewer lending options.

Businesses should start preparing now and seek out reliable fixed-term funds before their risk profile changes and their options diminish.

4 – Putting people first

January is always a difficult time for People teams, with lots of movement in all sectors, but in 2022 these challenges will be compounded further by increased labour costs, higher salary demands and the ongoing challenges of remote work versus returning to an office.

Firms will have to manage a tricky balance of keeping employees happy and engaged, while maintaining cash flow – after all, the cost of rehiring could be much higher.

5 – The digital revolution

From the rapid onset of digital transformation during the pandemic, to the ongoing battle between human labour and artificial intelligence and the increasing risk of cyber crime, 2022 is likely to be another year where technology is a challenge for businesses.

The most successful firms will be the ones that invest in upgrading their digital infrastructure, making the most of growth funding from alternative lenders to get one step ahead of their competitors.

How can firms prepare for these challenges?

Prioritising and mitigating challenges has to be the first step.

If you know that your business is adversely affected by global supply chain issues, now might be the time to invest in additional storage facilities or to research alternative supply routes. If your business is reliant on its technology or digital infrastructure, it could be worth upgrading cybersecurity, to decrease the risk of an attack.

By identifying the most pertinent problems and tackling them proactively, you may solve some of the key challenges before they actually arise.

Put funding first

Having a thorough funding plan can help support this.

There are plenty of options available to firms, including the government’s Recovery Loan Scheme (RLS) and innovation or R&D grants, but businesses should not be put off if they are denied finance by their primary bank.

Alternative lenders are often better-placed to assess the needs of growing businesses, as they can offer bespoke funding packages that are unmatched by the high street banks. Lenders like BOOST&Co usually offer a more flexible use of funds too – so growing businesses can use investment for R&D, expansion and even buy-and-build strategies.

The challenges of 2022 should not discourage innovative firms. If you are a business leader with big ambitions for growth, start speaking with funding experts now and get fully informed about all the options available to you.

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