After almost two years of restrictions, sanctions, and awful quality of life for the people of the UK (and the world in general) through the COVID-19 pandemic, you’d be forgiven for thinking that we as a nation would catch a break.
Following the lifting of all restrictions in February 2022, the public was ready to rejoice and get back to normal.
But alas, the bubble of hope for a happier, normal life popped in May, as UK small businesses began fighting their next battle: the impact of surging inflation rates.
Small business owners are feeling the strain from the rising cost of living, with nearly a third believing they could possibly be out of business within the year.
PayPal's Business of Change: Wellness & Empowerment Report 2022 found that more than three quarters (78 per cent) of small businesses cite the rising cost of living to be the biggest threat to their business over the next year.
The survey of 1,000 small business owners in the UK found that nearly half of them (47 per cent) fear the next 12 months could prove even more difficult, one in 10 (12 per cent) don’t expect to be in business within the year, and a further 15 per cent were unsure about the future of their business.
Two in five (40 per cent) business owners surveyed by PayPal also said that reduced customer spending is having a negative effect on cash flow, while over a third (35 per cent) said hefty fuel and energy price hikes are also piling on the pressure.
And as if that wasn’t enough, raw material costs are also on the rise, as well as a tight labour market which is putting further pressure on businesses. Many companies from a range of industries are struggling to hire new staff, reporting problems finding workers to fill vital roles.
But it’s not just the financial strain SME business owners are feeling — they are also taking huge hits mentally too — including worries about managing their own mental health and uncertainty over Anglo-international relations. Three in five (62 per cent) small business owners have suffered from sleepless nights due to worrying about their business.
During the spring budget, the government announced it would increase Employment Allowance from £4,000 to £5,000 as a way to tackle rising inflation.
Smaller firms will therefore be able to claim up to £5,000 off their employer's National Insurance Contributions (NICs) bills, which increased by just over one per cent on April 6. Chancellor Rishi Sunak said the change would benefit 50,000 small businesses. Even fuel duty was cut by 5p per litre as a way to combat rising petrol prices.
However, many viewed the statement as a missed opportunity during a time of huge financial pressures on small businesses.
Many small businesses outsource day-to-day tasks to third-party specialists – everything from photographers for PR images and marketing agents for building a brand and marketing campaigns.
As the cost of living continues to soar, small businesses are choosing to cut out any services that could be brought in-house, to minimise costs efficiently.
As mentioned earlier, many entrepreneurs are feeling uncertain about the future, especially as financial experts warn that the situation will continue for at least another year.
Some small business owners have started offering subscription-based pricing models to generate repeat payments and improve their company valuation.
Ensuring you have a strong understanding of your current financial position is one of the most important ways to prepare for any change in income.
Speak with an accounting consultant to get the lowdown of your existing assets and liabilities. Following this conversation, use the results to make informed decisions about what expenditures you can afford to divest in.
But if speaking with an accounting consultant is too expensive, installing free small business accounting software is a low-budget strategy to get your own analysis of the figures. Long-term, organisational tools ensure you’ll stay compliant with HMRC and avoid costly mistakes.
The most recent GDP report shone a light on the state of commerce in the UK, and worryingly, UK business investment fell by 0.5 per cent in Q1 2022.
Many small business owners are therefore choosing to pause their growth plans to conserve cash (and ensure more cash flow) for more pressing priorities.
There are a number of requests that can be expensive in the long run — less-than-minimum order quantities and rushed delivery, for example.
Rather than raising prices, a good alternative would be to apply optional fees to specialist service offerings — or on the activities putting the most strain on your supply chain. For any SMEs out there selling online, it may be worth using eCommerce builders for advanced editing tools and pricing analysis.
And if you really want to be tactical, it may be worth thinking about implementing product swaps. Packaging and materials all add up, so why not utilise cheaper equivalents to sell at lower costs without compromising margins.
Although remote working — or at least hybrid working — has become the norm for many larger-scale organisations over the past two years, it could be time for small businesses to switch to a remote working policy to reap the benefits.
An office in the UK costs on average £7,353 per person annually. That’s a lot of revenue that could be saved by implementing a home-working policy. Flexible office space providers, like the coworking organisation WeWork, offer hybrid solutions if you don’t want to say goodbye to an office forever.
Coworking spaces like this are usually more economical than traditional office spaces, while also giving tenants greater flexibility if you were ever to run into financial difficulty again. Renting office spaces would also relinquish some of your financial upkeep responsibilities including security or cleaning services.
SMEs haven’t had to deal with high inflation rates for more than a decade. However, this sudden hike in consumer prices and products means swift decisions and actions need to be undertaken by company decision-makers to ensure their businesses survive.
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