Global supply-chain issues, staffing shortages, and the spiralling cost of energy are all driving up prices, with inflation at the highest rate in 30 years. The detrimental effects of the global Covid 19 pandemic, the ramifications of the Russian war on Ukraine, and rising prices due to the far-reaching negative ramifications of Brexit have all made running a business more expensive, particularly for small businesses.
In this 3-part blog series, we are examining different ways to futureproof your business. In part onewe looked at rising fuel costs, and here we are specifically investigating the rise in the cost-of-living and how it affects businesses.
The ‘doom’ of cost-of-living increases
Surging prices, sky-high inflation, and uncertainty about the future is leaving households and businesses throughout the UK feeling the squeeze.It is expected that the 54% rise in the energy price-cap will climb again before the end of 2022, with average household energy bills increasing to around £2,800 a year from October. National Insurance payments have increased for most people and employers. Food prices are also continuously increasing, with Brexit contributing to the shortage of HGV drivers. Price rises are exacerbated as Russia’s invasion of Ukraine escalates further. Rising costs are posing a huge challenge for businesses, with many having to take on higher debt to survive.
The Federation of Small Businesses reports that 78% of small businesses have declared their costs are rising, with outgoings such as fuel and utilities now at their highest levels since 2014. This is a very concerning time for UK businesses, with inflation and global uncertainty threatening to dampen any chance at post-pandemic recovery.
What opportunities does this create?
It may feel like the current situation is a cloud without a silver-lining, but there are some glimmers of hope.
It might not seem like it, but rising costs could offer an opportunity for repositioning your business, maybe in a greener direction. As customers feel the pinch, they are understandably enacting more frugal consumption behaviours, more recycling and more reusing, with an increased focus on environmentally friendly alternatives to traditional purchases. Greener companies may be able to leverage this. For example, lots more people now work at home, so there are increased opportunities in areas such as DIY, and in home-growing/gardening products, with many wanting to grow their own fruits and vegetables to save money.
Unemployment is down, and conversely job vacancies are up. A lot of people are looking to improve their current situation, so this could be the right time to find some new talent for your business, perhaps people that wouldn’t previously have been so interested in switching to a new role or a new organisation. Now is a great time to revaluate what your business has on offer to attract talent.
The current situation has forced many retirees to turn to skilled freelance work to supplement their income in these hard times. Retirees returning to the workplace can bring with them a welcome wealth of expertise and knowledge, often combined with a strong work ethic. It may be worth considering taking advantage of this by hiring some ex-retirees as independent contractors, as that expertise could give your business a competitive advantage.
Futureproof your business against the rise in cost-of-living
There are some steps that can be taken to develop confidence throughout these uncertain times ahead and set businesses up to thrive in the future when, hopefully, we will see an improvement in the pressures we all face.
- Reduce your business expenses. Finding a way to cut down on costs may seem obvious but thinking about it carefully now could mean the difference between survival and not, particularly for small organisations. Prioritise a review of all outgoings now, so you can better understand exactly what you’re spending. Is everything you’re paying for entirely essential at this time? You may find that some outgoings that aren’t fundamental to the success of your business currently. Carefully weigh up if the benefit of each outgoing justifies the cost you’re paying. You may decide you can make cuts or delay certain outgoings by temporarily pausing contracts with suppliers. The review should include a benchmark of your key suppliers. Check that you’re still getting the best deal. Do your suppliers have competitors offering lower prices for similar services? Check your cleaning contracts, your energy supply, your external agencies such as HR, IT, PR. Can any savings be made?
- Educate your employees to always consider costs and make small but important changes. Over time small changes can add up to significant financial improvements when committed-to fully. It may be something as small as making sure that all equipment is turned off rather than left on standby mode at the end of the day, and that all lighting at your premises is turned off outside of business hours. Have you been considering a move towards a greener, paper-free office? Now is the time. Encourage all staff to attend meetings with laptop in hand, instead of printing documents. For anything that absolutely does have to be printed; can it be printed in black ink only? Can it be printed on a lower grade of paper? Can you swap your lightbulbs for energy-saving versions? Do you have high postage costs? Searching for rivals to the ever-increasing costs of Royal Mail may help you to find cheaper alternatives. Some organisations, such as parcel2go, allow customers to search for the cheapest delivery service for different items.
- If you have resisted it so far, perhaps now is the time to consider how feasible it would be for your team to work remotely, or partly remotely, to reduce the need for large, expensive premises. Your employees may thank you for the money they would personally save on the costs of commuting, increasing morale and potentially increasing their loyalty.
- Speak to your organisation’s Accountant or Financial Advisor to ask for their advice. They are likely to be well informed on what impacts the current situation is having on your industry and may be able to identify opportunities for savings or useful financial changes.
- Consider recalibrating what you charge. It’s understandable that many businesses try to avoid increasing their charges to clients or customers, for fear of losing business or affecting their reputation, but your business ultimately needs to profit from the goods and services that you supply. People do know that many businesses have reached the stage of having to increases their prices due to inflated costs and supply chain challenges, so they are potentially going to be understanding of your justified price changes, particularly if you are open; communicate well, and commit to being transparent about the reasons for increases. Ideally give your clients or customers fair warning of when prices will change. Often your customers won’t have chosen you purely because of your prices. Many consumers buy from companies that align with their values. It’s possibly your product quality, high level of service, or your commitment to sustainability that appeals, meaning they may be willing to pay a little more to retain your brands unique qualities.
Whatever steps you take to help your business tackle the current cost-of-living pressures, are sure to be vital to navigating the crisis. We cannot bury our heads in the sand, because doing nothing and hoping for the best is a guaranteed way of seeing your profits tumble. Careful planning can go a long way towards equipping you and your employees with the tools you’ll need to weather the storm
Knowledge is key, so try to stay informed of upcoming changes for your industry and the economy. Knowing in advance where prices are expected to increase, and what this might mean for your business’ finances, can make all the difference for your resilience.
Next time we will return to the ‘futureproofing your business’ series for the final time. We’ll be examining how employers can cope with the rise in salaries.