The cost of living crisis currently affecting the UK has been widely publicised, with much attention paid to the impact on the everyday citizen. Factors such as the lingering effects of the pandemic, Brexit and the Russia-Ukraine conflict have seen a surge in costs across industries, from energy to food.
While less publicised, rising costs are also affecting businesses. Last month, Federation of Small Businesses (FSB) National Chair Martin McTague said that “the cost living crisis starts with a cost of doing business crisis”. His statement highlighted that the issue of cost in business has knock-on implications for the public, and more needs to be done to solve the problem at its source.
The crisis has already seen economic confidence decline, with consumers spending less. This again has implications for businesses, with SME growth plans stalled and post-pandemic recovery slowed.
With uncertainty looming and the potential long-term consequences, many SMEs will naturally be worried.
We’ve put together a list of tips to help you mitigate the dangers of the cost of living crisis on your operations for peace of mind and resilience in the coming months.
Increase prices
Increasing prices can be controversial, especially when people are already dealing with rising costs. However, if you are witnessing unprecedented expenses in your business, it will come to a point where you simply must pass the cost onto your customers.
If you have to adjust your pricing model, aim to minimise the change as much as possible while enabling you to operate profitably still. You need to remain competitive in the market, as a price change could otherwise send your customers elsewhere.
It’s also worth communicating with your customers about the price change and why it is needed – given the context, most are likely to understand and even expect it.
Conduct financial audits
It’s crucial to understand your costs and how they fluctuate. This will enable you to see the actual impact on your expenses and take appropriate action. Holding regular financial audits will uncover any creeping costs you need to tackle.
Part of your audit will be seeking ways to lower costs. Examples include eliminating unnecessary expenditure (by cancelling contracts or other fees you don’t need) or reducing them (such as by finding cheaper alternatives).
By consistently auditing your costs, you will keep on top of rising costs and limit the pressure on your cash flow.
Limit energy use
One of the driving forces behind increasing costs is energy prices. A simple way to counteract the costs is to reduce your energy use.
Tips to reduce energy usage include:
- Turning off equipment and other electrical items when not in use
- Avoiding leaving equipment in stand-by mode
- Use machinery with lower energy consumption
- Leave equipment running for shorter periods, such as by speeding up turnaround time
- Encouraging responsibility among your workforce, e.g. switching off lights at the end of the day
It’s worth noting that sustainability is growing pressure for businesses, so lessening your energy consumption will also help you to meet environmental targets while reducing your monthly energy bill.
Shop around for utilities and supplies
While prices will generally rise across the board, it may be possible to find better deals with different suppliers. Due to this, it is worth shopping around to compare the cost of supplies and utilities – such as electricity, water and gas.
If you find better deals, it may be worth making a switch. Discuss this with your existing providers first, as they may be able to offer a more competitive deal to keep you. You should also aim to uncover if there are any termination fees associated with exiting your contract.
If you don’t find anything better, there’s no harm done – but if you do, it could be an effective way to lower your costs.
Communicate with suppliers
Your partners and suppliers are likely to be experiencing the same challenges you are, with the cost crisis affecting many companies. The costs end up getting passed on throughout the supply chain.
It is wise to keep the lines of communication open with your suppliers so you are aware of any price changes ahead of time. This will enable you to plan accordingly, with full transparency of the impact on your business.
Seek alternatives
If rising costs are threatening to overwhelm your business and you do not wish to raise your prices any further, the best route forward is to find alternative solutions.
The most obvious example is searching for cheaper materials that enable you to provide your products and services at a lower cost. The aim is to not dimmish quality, so your customers’ expectations are met, but the overall cost per customer is reduced.
Utilise invoice finance
Everyone is being affected by the cost of living in the UK. With consumer confidence declining, you may encounter instances where your customers are reluctant to pay, or the process takes longer than usual.
Late, or lack of, payment will restrict SME cash flow and lead to more significant financial issues. When you may already be feeling the pinch, this isn’t ideal.
Fortunately, invoice finance is designed to support businesses in these circumstances. Your unpaid invoices are used as security against a loan, allowing you to unlock capital tied up in them. This extends the timeframe in which you require payment while easing the cash flow pressures in the meantime. With a factoring solution, the lender will even chase payment on your behalf if you wish.
If late customer payment does become a significant problem for your business, this could be the lifeline you need.
Search for support
Currently, no significant government support is available for SMEs dealing with rising costs. However, there is already pressure on them to start providing it.
If the problem continues to impact businesses negatively, the calls for support will only increase and may prove crucial to survival. It is wise to keep an eye on any upcoming support that may be made available and determine if you are eligible.
Even if the government chooses not to create a support scheme for SMEs, there may be assistance from other bodies, such as industry leaders, so it’s worth searching around.
Utilise external funding
With ongoing uncertainty, it may be tempting to avoid external finance. However, finding appropriate funding will enable you to overcome difficulties, improve cash flow and continue to grow despite the troublesome context.
Speaking to a financial broker will pinpoint the obstacles you are facing and the options available to overcome them. They will also be able to take you through the cost implications so ensuring you have funding that won’t strain your cash flow further.
In summary
The cost of living crisis is upon us now, with many SMEs already feeling the effects. As rising costs continue, we will see more ramifications, including higher prices and business disruption.
Doing what you can now to minimise the impact is crucial for resilience and survival. Minimising costs – such as reduced energy usage and cheaper supplies – while adjusting your pricing model and planning effectively will help you mitigate the risk.
If you continue to feel the strain, external finance will also provide the necessary support to keep things moving and allow growth plans to flourish.
Pegasus Funding can guide you through the process of navigating rising costs, including identifying funding options that will ease the gap and safeguard your business. Get in touch today to find out more.