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It’s looking likely that 2024 will bring a new set of challenges for many organisations. With the cost-of-living squeeze still a prominent concern, high rates of inflation and sickness absences rates at a 10 year high, issues are likely to arise in relation to cashflow, profitability and people.
But with adaptability, empathy, and a strategic mindset, these challenges can be transformed into opportunities for growth and success for many directors.
1. People
People are central to the success of almost every business but managing them isn’t always smooth sailing. In 2023 we saw the war for talent continue, but we believe this will tail off throughout 2024. More focus will be put on retaining and engaging employees, as they become more aware of their rights than ever before and continue to request more flexibility with a focus on health & well-being.
Sickness and well-being
Sickness absence levels reached a 10-year high in 2023 and we don’t see there being a drastic change in 2024, if anything we expect the situation to continue to worsen. Sickness absence can cause many businesses a headache – from the obvious issue of being short staffed and concerns over quality, not to mention the cost of absence, and is likely to remain a key challenge throughout 2024.
Stress was said to be one of the biggest causes of workplace sickness in 2023 and directors will need to work closely with their HR teams and managers to improve well-being, working to reduce stress levels across the board. Whilst stress at work is sometimes unavoidable, continued periods of high stress and an increase in sick days, is not only a health issue but a business performance challenge.
Directors play a key role in the prevention and management of work-related stress to improve workplace well-being and health, creating a culture where people want to come to work and are healthy doing so. By working closely with a HR team or outsourced provider you can begin to understand the causes and identify ways to reduce sickness absence rates. This could be through line manager training to spot signs of burnout and stress early and amongst other initiatives.
Well-being initiatives are a critical aspect of employee retention. It’s a good time for directors to prioritise and take an active role in supporting workforce mental and physical well-being. Utilise flexible working arrangements, mental health support programs, an employee assistance programme and other stress-reduction initiatives. A happier and healthier workforce is often a more productive one.
2. Inflation
Inflation is likely to remain a key challenge for businesses throughout 2024. Whilst the International Monetary Fund believe global inflation is expected to fall to 4.3% in 2024, this is still well above the Bank of England target.
Whilst the slight fall is a positive prospect for directors, the beginning of 2024 will likely be a time to manage the backlash of the cost-of-living squeeze and inflation hikes.
Revisit your pricing strategy
The rising cost of goods and services has made companies reassess their pricing strategies. Directors should be prepared to have open and honest discussions with clients about necessary price increases, if applicable. Communicating these changes transparently is vital to maintaining trust and long-term relationships.
Manage cash-flow effectively
Managing cash-flow effectively is essential for the success and sustainability of any business, especially in times with soaring inflation and interest rates, impacting highly leveraged businesses the most in the past 18 months. Jak Hill from accountancy firm Kreston Reeves has shared his thoughts below.
Maintaining forecasts
Maintaining detailed cash flow forecasts is paramount. Business owners and finance leads should project future inflows and outflows, considering factors such as sales cycles, payment terms, seasonality and external factors including inflation and interest rates. Regularly reviewing and updating this forecast allows for proactive decision making and early identification of potential pinch points and issues.
Technology can play a crucial role in cash flow management. By utilising accounting software, businesses can automate invoicing, cash reconciliations, debt chasing, monitor expenses and generate real-time financial reports and forecasts. Automation also reduces the risk of manual errors and saves time, allowing owners and management to focus on strategic initiatives to improve cash flow.
It’s only when a forecast is prepared and maintained that a business can review their options to improve their liquidity around the pinch points identified.
Strategies to improve liquidity
Generic strategies for businesses to navigate and optimise their cash flow can be summarised as:
- Negotiate more favourable payment terms with suppliers
- Review stock holding policy. Leaner levels of stock leads to less cash being tied up, however the importance of being able to respond to customer demand remains
- Analyse customer payment terms and sales cycles - how can customers be incentivised to pay quicker
- Evaluate current and future debt needs and research the market for better products
- Ensure obligations with HMRC (PAYE, VAT, Corporation Tax) are structured correctly and consider payment plans
- Educate employees and instill a culture of financial discipline, being timely with invoicing, efficient with expense management and prudent with financial decision-making
Businesses can enhance their financial resilience and position themselves for long-term success through proactive cash flow management and by leveraging technology.
Redundancy
According to Acas, 30% of employers may make redundancies in the next year. Experts say this is due to the Bank of England raising the interest rates 14 times since the end of 2021 and the ongoing effects of the cost-of-living crisis.
Businesses feeling the economic squeeze may find themselves with no other choice but to restructure or reduce headcount. Sometimes, making redundancies is the best business decision but directors must approach this delicate issue with sensitivity, ensuring the process is carried out fairly and in a way that minimises the negative impact on those who are leaving and the morale of those who remain.
If you do find yourself needing to make redundancies, ensure you follow the legal redundancy process meticulously, preventing discrimination and potential complaints. Be transparent with your team, share your business plans, and provide support to alleviate their worries.
4. Hybrid working tug of war
The future of work is being reshaped by the growing trend of hybrid work patterns, which is significantly reducing the demand for office space.
Rethinking the office
According to McKinsey's projections for 2030, demand for office space could drop by up to 20% compared to 2019, with the extent of the decline varying by city. This shift is primarily attributed to the surge in remote and hybrid work.
As a result, companies will need to revisit their strategies to align with evolving work habits. While teamwork and increased productivity remain key drivers for on-site work, many office environments are failing to meet the diverse needs of employees. Providing quiet, distraction-free spaces for independent work is now considered crucial for job performance.
Setting up a "meeting equity" by creating environments that seamlessly blend virtual and physical offices is emerging as a priority, moving beyond the traditional conference room setup to accommodate the needs of both in-person and remote workers.
The demand for hybrid working models is likely to persist well into 2024. Directors must reevaluate the purpose and necessity of office spaces. Reducing the office footprint can save costs, but this transition should be thoughtful and considerate of employee preferences and job requirements.
Monitoring productivity legally
As productivity concerns continue in hybrid working environments, directors may be looking to explore ways to monitor work effectively.
The Information Commissioners Office (ICO) released new guidance at the end of 2023 in response to the shifting landscape of remote work and evolving technology, prompting employers to implement various forms of employee monitoring. Their research found that 70% of employees find workplace monitoring intrusive, this discomfort underscores the need for organisations to approach monitoring with sensitivity and transparency.
The ICO emphasises the crucial balance between legal obligations and workers' rights in the workplace. Their guidance, designed to ensure full compliance with the UK GDPR and Data Protection Act 2018, offers not just compliance directives but also invaluable good practice advice and practical checklists.
Implementing clear policies on productivity measurement, ensuring data privacy compliance, and providing employees with the necessary tools and resources for remote work can help strike a balance between trust and productivity.
5. Making a success of customer success
In times of economic uncertainty and high inflation, it’s likely that your customers will also be feeling the pinch and re-evaluating their spending habits. Whilst there are some products and services that may be the first to see reduced spending as they look for quality over not quantity, customer success will be the backbone of any retention strategy.
To stay profitable and maintain customer loyalty, businesses should reevaluate how they look after their clients and what else they can to do make their offering more attractive without spending.
For some, it may be inevitable that you need to increase your prices, but it's essential to justify these increases with added value. Providing exceptional customer service, personalised solutions, and products that align with customer needs can help justify higher prices.
5. AI
AI is here to stay and whilst some organisations are embracing it, it hasn’t come without challenges. AI and automation have the potential to streamline processes, enhance decision-making, and optimise productivity. However, organisations must navigate legal frameworks and prioritise data privacy to protect both their workforce and customers.
Although there are no current laws governing the use of AI in the workplace, issues do arise under existing employment legislation and in May 2023, The Artificial Intelligence (Regulation and Workers' Rights) Bill 2022-23 was introduced as a Private Member’s Bill. This bill will strengthen workers’ protections, particularly against ‘discrimination by algorithm.’
It’s unlikely we’ll see AI specific laws anytime soon, but there are various committees and stakeholders prioritising discussion on this topic. Undoubtedly as AI becomes further ingrained and more widely used we’ll begin to see issues, and claims, arising. The passage of claims through the Tribunal system is likely to highlight the gaps in the law and add further pressure for specific reform.
Employers should consider the following:
- Employment Contracts and Data Protection: Employers must ensure that employment contracts address the use of AI and automation. It is crucial to inform employees about the collection, processing, and storage of their personal data in compliance with the General Data Protection Regulation (GDPR) and the UK Data Protection Act 2018.
- Discrimination and Bias: The use of AI algorithms and automated decision-making systems should be carefully monitored to prevent discrimination and bias. Employers should regularly assess and review these systems to ensure fairness, transparency, and compliance with anti-discrimination laws.
- Worker Consultation and Impact Assessment: When implementing significant technological changes, employers should engage in dialogue with the workforce (and any representatives) to address potential impacts on employment, work conditions, and data privacy. Conducting impact assessments can help identify and mitigate risks associated with AI and automation.
Prioritising the well-being of employees, effectively managing inflation and embracing hybrid working will be key elements in navigating the corporate landscape this year.
