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July 2015

Survive and thrive, how to be a successful SME in the oil down turn


"To succeed with this approach, we have to be open to change. We must avoid doing the same things in the same way and expecting a different outcome. We have had a decade of escalating costs, so we can be sure that our current approach doesn't work".


A thought provoking quote from the new chief executive of Oil and Gas UK, Deirdre Michie, during the annual Oil and Gas UK conference about the current difficulties facing the North Sea oil industry.


Aberdeen may have been fortunate enough to avoid the financial crisis that struck the rest of Britain six years ago but the city now faces a significant downturn, following 30 years of oil and gas triumphs.


A report - 'Fuelling the Next Generation - A study of the UK Upstream Oil and Gas Workforce' - predicts that a total of 35,000 jobs will be lost by 2019 as oil exploration and recovery operations decline and new fields become more difficult to source and commercially exploit.


It was estimated that more than 400 companies of varying sizes are operating within the energy sector in Aberdeen, working together to generate the 50.8 billion in tax revenue forecast by the Office for Budgetary Responsibility for the period 2010-2015.


"But, contrary to popular belief, Aberdeen isn't just made up of lucrative oil and gas giants," explains Derek Petrie from Hall Morrice LLP, Aberdeen-based independent chartered accountants."


"I work with clients from small, medium and large enterprises spanning across a range of industries from construction and agriculture to banking and consultancy; each as determined as the next to survive and thrive in this unpredictable climate."


"Not all of our clients' operations are impacted by what is happening in the oil and gas market, but a significant amount of them get the spin-off that a buoyant and strong energy sector creates, or are directly servicing oil and gas companies."


But when corporate giants are struggling, how can SMEs be expected to thrive?


"It's all about innovation and evolution; the businesses that can adapt the quickest, and most effectively, will reap the rewards. When I meet with clients I ask them to take a step back, out of panic mode, and assess their business aspirations and strategy," explains Derek.


Downturns present businesses with a dilemma - to cut costs to conserve resources or to invest in new products and services to exploit competitor weakness.


In Scotland, businesses that work in the oil and gas industry have to act quickly to reduce costs as the oil price plummets. This then affects the SMEs that sell to or serve the industry - from the IT suppliers to marketing - instigating a domino effect.


To counteract this effect, it's important to ensure the business strategy is malleable and proactive, predicting industry movements to get ahead of competitors.


Derek continues, "I work with a number of clients in Aberdeen who are looking for me to give them simple, straightforward advice. As a starting point, they may want to look at a five-step guide that can be applicable to any SME."


The first step is to analyse the current service and product offering - look at the industry each product is servicing and whether this could be expanded upon. Are there any niche industries that could be worth exploring? Use this as an opportunity to expand into new markets with new and existing products.


"Surprisingly, being an SME in a down turn can be advantageous - as a small business, it's likely to only have a small percentage of the available market" explains Derek.


"The bigger businesses tend to suffer more dramatically and have to make major cutbacks to continue. This is a prime opportunity for SMEs to showcase exceptional products and personable customer service."


Invite prospectus clients for coffee, or have an informal discussion over the phone; this relationship building exercise will strengthen potential new business opportunities.


Next step is to focus on the positives - in times of austerity it can be easy to fall into the habit of cost-cutting rather than actively applying revenue generating activities. Inspire the team and spend time on sales and marketing. Practice self-promotion by publicising all of the positive work an SME is doing which will act as a refreshing change for news full of job cuts and closures.


Sometimes cuts are unavoidable but try, where possible, to start small. Look at expenses closely - is there anything that could save the company money but will not compromise on revenue generating activity? Try cutting back on any extra luxuries that are not essential.


Derek concludes, "And finally, try - where possible - to keep up staff morale. Take a moment to brainstorm future proofing ideas together. Actively initiating team building activities will encourage staff collectiveness, unity and responsibility."



Formed in 1976, Hall Morrice offers accountancy services across major sectors including oil and gas, construction, retail and service industries, with offices in both Aberdeen and Fraserburgh. Hall Morrice is based at 6 and 7 Queen's Terrace in Aberdeen and can be contacted on 01224 647394 or at accounts@hall-morrice.co.uk


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