There is uncertainty around the future of many businesses at present, especially small businesses, due to the consumer spending squeeze brought about by the cost-of-living crisis. Small businesses account for around two-thirds of employment across the UK and 5.5 million small and medium-sized businesses, all of which could face economic challenges, putting their futures at risk of failure.
The rise in inflation, energy prices, and supplier costs are some of the many challenges putting pressure on businesses at present. The number of registered insolvencies in June 2022 was 40% higher than in the same period in 2021 and 15% higher than pre-pandemic levels in June 2019.
On a positive note, there are plenty of actions small businesses can take to help reduce the risks posed to them at present, whether being agile in finding new customers, ensuring liquidity for future outgoings and carefully managing costs, these are all steps to take to ensure your business stays afloat through this cost-of-living crisis.
Top 3 factors affecting the cost-of-living crisis
The cost-of-living increase impacts every business, but price increases can create a larger impact on smaller businesses as they lack the benefit of consumer protection schemes such as the energy price cap. There are many factors affecting the increase in cost rises for small businesses, below are the top 3:
- Rise in InflationThe Consumer Price Index measures inflation and small businesses are seeing a steep increase in the cost of business services, materials, and supplier costs, plus pressure on a rise in wages, as employees are seeking higher salaries to keep up with the increased cost of living.
- Cost within the supply chainImporting and exporting goods has seen a significant increase in cost just recently, with fuel prices skyrocketing, and the amount it costs for the transportation and shipment of goods is colossal. In 2021 the cost of a shipping container increased by 800%!
- The rising cost of energyBetween 2021 and 2022, non-domestic electricity costs rose by 29% and non-domestic gas prices saw an increase of 71%, which is causing a huge drain on business cash flow for SMEs. Some of the businesses most at risk of these inflated costs are manufacturing, warehousing, and hospitality businesses.
Business cash flow strains: Unable to pass on rising costs
One of the biggest concerns facing small businesses at present is their inability to pass on rising costs that they too have been presented with from their suppliers. Statistics show that 49% of businesses are concerned about their suppliers putting up prices and not having a way to absorb the cost into the business and 38% of these businesses feel that they are unable to pass on these inflated prices to their own customers.
Many small businesses are left with the fear of covering these costs alone, especially businesses in the North East and West Midlands. More than half of businesses in these locations are being hit by rising costs from suppliers and only a third feel they can pass the increased costs onto the customers.
How your business could tackle the rising cost of living
Below are just some of the ways in which you can tackle the rise in costs in your small business.
Plan and Budget
Considering ways to minimise costs is a great start to tackle the cost-of-living rise. Look at where your money is spent within your business. Do you pay a lot for specific materials, could these be found cheaper elsewhere with a little time and research, are your operational costs high and is there a way you could bring this down by changing machinery? If you have infrequently used services too, could these be cut to free up cash flow?
Localise your suppliers
Avoid the extortionate shipping and import costs by sourcing materials, suppliers, equipment, etc. locally. This will help you avoid shipping container costs, fuel and transportation costs, and the all-important costs to the planet with a reduction in greenhouse gases in the amount of fuel needed to get your materials to you.
Examine your use of energy
By doing some research on where your business uses the most energy and how you can negotiate with energy suppliers to help bring costs down or switch to renewable tariffs. Installing energy-efficient lighting, adding smart meters, and encouraging employees to turn off equipment when not in use can all add up to help bring down your energy bill.
Support in the workplace
If you are a small business and the cost increases are too much for your business to accommodate an increase in wages, then there are other ways to offer support to your employee. If possible, introduce more work-from-home days to decrease the cost of travel or you could sign up for a corporate staff discount scheme, where employees can sign up to save on supermarket shopping and days out, etc.
Support your customers
While it may seem counterintuitive to lower prices in a cost-of-living crisis, this alongside others, are ways you can retain customers and even expand your customer base. Consumers have cut back on spending, so offering incentives like discount schemes for faster payment, cashback rewards, and payment plans can help your customers spread the cost of buying. Offering reduced pricing, or price holds is another good way to help your customers buy more.
Consider business finance through independent business finance brokers.
There are many forms of business finance in today’s market, and if your business is viable and has good, long-term growth prospects, then you could really benefit from business finance.
At PMD, we are independent business finance brokers, who can offer a diverse and flexible range of business finance solutions to help you tackle rising costs within your business. Whether that be a business loan, invoice finance, merchant cash advance or asset refinance, at PMD our most important priority is to listen and truly understand your business, people, products, and services to be able to find and offer the best lenders suited to your business’s needs.
We work with over 150 lenders and provide an outstanding service that goes beyond finance to help navigate your way through this rise in cost. We pride ourselves on our refreshing, jargon-free communication via our team of highly approachable and dedicated advisors. Our clients can confidently enter a lasting relationship built on honesty and trust.