Many small businesses may be facing an uncertain future as a result of the UK's economic challenges.
From rising costs of living that weigh on consumer spending to rising inflation and energy prices that weigh on business costs, many small businesses could benefit from taking steps to cut costs and operate more efficiently. There is a possibility that you will receive it.
Difficult economic conditions are likely to put significant pressure on the UK's 5.5 million small and medium-sized businesses.
With small and medium-sized enterprises accounting for around two-thirds of jobs across the UK, the knock-on effect could impact workers and put businesses at risk of collapse.
Apparently, the number of insolvencies registered in June 2023 was 27% higher than in the same period in 2022.
This was higher than levels seen during government support measures in response to the coronavirus pandemic, and higher than pre-pandemic figures.
The good news is that there are many actions small businesses can take to reduce the risks posed by rising costs of living.
Carefully managing costs, securing liquidity for future spending, and being agile in finding and retaining customers will help put your business on a stronger footing.
What is causing the cost of living to rise?
While the term 'cost of living' suggests consumer challenges, small businesses that do not benefit from consumer protection schemes such as energy price caps can be significantly affected by price increases.
The increase in the cost of living for small businesses is driven by several factors, including:
- inflation – Inflation is measured by the consumer price index, and small businesses are experiencing rapid increases in the cost of materials and business services.
Rising consumer cart prices are also putting pressure on wages as employees seek higher salaries to match the increased cost of living. - supply chain – Overall transportation and transport costs, including import and export of goods, increased.
Although fuel prices have come down from their July 2022 highs (PDF, 757KB), they are still higher than before the cost of living crisis began.
The cost of shipping containers rose by up to 800% in 2021, but forecasters predict prices will start to fall. - energy – According to the government’s quarterly energy price data (PDF, 1.413 KB), non-domestic electricity prices increased by 29% between Q1 2021 and Q1 2022, while non-domestic gas prices increased over the same period. Increased by 71%.
This affects high-energy businesses such as manufacturing, warehousing, hospitality, and refrigeration operations.
How to deal with living expenses
Many small businesses facing economic disruption could benefit from controlling costs and building financial resilience.
When assessing how the cost of living crisis will affect your business, it may be worth considering some of the following tactics.
1. Control costs
By evaluating your existing costs, you can identify cost savings and cheaper alternatives.
This ranges from materials used in manufacturing to inventory in retail stores. Also look at operating costs.
Expenses can accumulate over time, such as paying for infrequently used services, legacy platform costs, and expensive client meetings.
Consider ways to minimize them.
2.Domestic procurement
Avoid high transportation and import costs by sourcing materials, supplies, ingredients, and products locally.
Local suppliers can reduce transportation costs and reduce the amount of greenhouse gases (GHGs) emitted by burning fossil fuels.
Domestic supply chains can be more resilient and reliable to geopolitical events.
3. Evaluate your energy usage
It may also be worth investigating where and how your business uses energy.
Evaluate your energy supplier and consider renegotiating your supply contract or switching to renewable rates.
You can also incentivize employees to reduce energy costs by turning off equipment when not in use, installing energy-efficient lighting, and adding smart meters to monitor consumption.
Explore our directory of carbon footprint and sustainability calculators.
4. Support employees
Your staff are likely feeling the effects of rising costs of living.
If the cost of increased pay is not affordable for your organization, consider other ways to reduce the burden on your staff.
Consider increasing the number of work-from-home days to help employees reduce fuel costs, or enrolling them in a corporate employee discount program that allows employees to save money on grocery shopping and eating out. can also do.
5. Focus on the customer
As we see consumers cut back on spending and the cost of living goes up, it's a good idea to think of ways you can help your customers while ensuring you maintain business with them.
Ideas include introducing loyalty discount schemes, offering cashback benefits, and introducing installment payments to help spread the cost of purchases.
It's worth considering whether your business can maintain its prices or even lower them. Price-conscious shoppers may be looking for bargains when finances are tight.
6. Funding
If your business is viable and has long-term growth prospects, consider financing with a loan or equity investment.
This injects liquidity into your business, allowing you to pay your suppliers and pay your overheads.
You can also fund price promotions and invest in cost-saving technology.
References to organizations, businesses or events on this page do not constitute endorsement or recommendation by British Business Bank or the UK Government. While we use reasonable efforts to keep the information on this page up to date, we make no warranties (implicit or otherwise) that it is current, accurate or complete. This information is for general information purposes only, does not take into account your personal circumstances, and does not constitute legal, financial, tax, or other professional advice. You should always consider whether the information applies to your particular circumstances and, where appropriate, seek professional or specialist advice and support.
