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Guy Callaghan, CEO of Banjo Loans, believes that while the risks were real, the rewards of expanding during tough economic times could be significant, provided this expansion is approached wisely.
“When the economy is challenging, it’s tempting for businesses to wait things out. But the right businesses, with the right strategies, can find themselves in a stronger position than their competitors if they’re willing to take measured risks,” Callaghan said.
Callaghan said that during economic downturns, many competitors tended to pull back, creating an opportunity for SMEs willing to take strategic risks.
Expanding during these times could allow businesses to capture market share that might not have been available in more favourable conditions.
“Right now, a lot of businesses are playing it safe, and that opens the door for those willing to take the plunge. If you can expand responsibly when others are holding back, there’s a real chance to grow your market share,” Callaghan said.
Economic uncertainty also often led to a surplus of top talent on the market and SMEs that choose to expand could take advantage of this by hiring skilled employees who may not have been available at the time of economic improvement, thus leading to a long-term advantage.
“We’ve seen some great talent become available during this downturn – when the employment market has cooled. Businesses that expand now can secure top-tier talent that might not be there when things improve. It’s a great way to strengthen your business for the future,” Callaghan said.
Additionally, investing in new products or services during tough times could also have given companies a first-mover advantage when the market recovered, positioning them as leaders in their industry.
By innovating at that time, SMEs can show themselves as pioneers and secure a strong position for future growth.
“Expanding gives you the chance to innovate when your competitors are hesitating. If you’re the first to market with a new idea, you’ll be in a much stronger position when the economy picks up again,” Callaghan said.
According to Callaghan, SMEs that managed to grow during a downturn often emerged stronger than their competitors when the economy rebounded. These businesses tended to have leaner operations, stronger market positions, and were better equipped to handle future growth.
“Businesses that can successfully expand now will lead the pack when the economy turns around. They’ll have built up an efficient operation and they’ll be able to capitalise on opportunities,” Callaghan said.
However, expanding during uncertain times came with its own set of risks. Callaghan said that one of the biggest dangers for businesses was standing still.
Companies that chose to wait might have missed crucial opportunities, such as capturing market share, launching new products, or securing top talent.
“One of the biggest risks is standing still. We’ve seen businesses miss out on opportunities because they were too cautious. Whether it’s launching a new service or hiring key people, waiting too long can mean your competitors get there first,” Callaghan said.
Furthermore, expanding during an economic downturn could also place a heavy financial burden on SMEs.
If revenue doesn’t materialise as expected, businesses could struggle to meet repayment obligations, especially if they had borrowed to fuel their growth.
This poses particular risk in industries where demand has softened, such as retail, logistics, and construction.
“If you can’t predict reliable cash flow, you might find yourself overextended. You need to be absolutely sure that your income projections are solid before taking on additional debt,” Callaghan said.
With inflation affecting everything from wages to raw materials, SMEs must factor in the possibility that the cost of doing business may continue to rise, as it could eat into profit
margins and make it harder to realise the benefits of growth.
“Businesses must be prepared for the fact that their expenses could increase even faster than anticipated. Expanding in this environment means you’ve got to have tight control over your cost base,” Callaghan said.
Many businesses have already felt the effects of rising interest rates, adding pressure on SMEs trying to service new loans. While rate reductions are expected within the next year, persistent inflation means the return to lower rates will take longer than anticipated.
“If you don’t factor rates in carefully, your expansion plan could end up costing you more than you expected. Businesses need to be very clear on how they’re going to manage this extra financial load,” Callaghan said.
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