How Small Businesses Survive In The Cost-Living Crisis

We've all been through tough years. As soon as we believed the pandemic was at its worst, we were smacked with growing inflation and skyrocketing oil prices. The cost of living is now approaching a crisis level.

Due to the impact that growing costs are having on both your personal and business budgets, owners of small businesses have been particularly hard-struck. Another concern is that trade may suffer if people decide not to spend as much, which is a usual consequence of rising inflation. Given that 2023 will likely see a recession, it doesn't appear that things will get better anytime soon.

Cost living crisis

Inflation is rising more quickly than wages and benefits increases, which is the primary reason for the cost of living crisis. As a result, less money is available for consumers to spend on necessities. The rate at which prices are increasing is gauged by inflation.

The energy crisis -

The oil and gas demand has increased significantly since the year 2021 began as more nations eased their way out of shutdowns. The crisis in Ukraine has increased supply uncertainty and driven up global energy prices as a result of this strong demand. Rising prices for energy providers translate into higher costs for residential and commercial energy customers.

Government financial support -

Not only did the federal government recently discontinue its support programs for company finance, but companies also had to begin repaying using Bounce Back loans. As a result of this and the elimination of other forms of financial assistance, such as lower VAT rates for the hospitality industry, business owners now face increased expenditures.

Shortages of goods and supply chain issues -

Global shipping costs have gone up as a result of a decrease in transportation capacity, which has also affected the supply chain. The average price of transporting a big container went up. Due to rising costs, escalating demand, and a lack of supply, prices are only going to keep rising. Another factor is the ongoing situation in Ukraine. Ukraine is a significant supplier of agricultural products like grain and sunflower oil, and any disruption in this supply will increase the price of food globally.

The situation in Ukraine is a major factor in the rise in world prices since it is upsetting the supply chains for manufacturing and agriculture as well as driving up the cost of energy. The overall cost of living dilemma is being significantly exacerbated by these increases in energy prices. The most complete measure of inflation includes council tax and all expenditures associated with owning, maintaining, and residing in one's own home. It also includes all sorts of household spending.

Rising inflation for small business owners -

Although rising inflation is typically portrayed as terrible for households, it raises prices for everybody, including business owners. If you own your own firm, this may require you to spend more on supplies, inventory, and items. Additionally, it implies that wage increases may be necessary for workers to offset rising living expenses.

Due to Brexit and the epidemic, many company owners are currently encountering staffing issues and supply chain issues as demand rises. If you conduct business abroad and the UK experiences higher inflation than other countries, this may reduce your ability to compete as your products or services become more expensive.

But the news isn't always all terrible. Sales might increase, especially if inflation persists for a long time. This is due to the possibility that consumers may purchase products and services right away as opposed to waiting and risking increased pricing.

The feeling of business owners about the cost of living crisis -

Small business entrepreneurs appear to be predominated by feelings of worry and uncertainty. Many believe that their firms could suffer long-term repercussions as a result of the current turmoil. The report also revealed that the last two years had been the most difficult for two-thirds of British small business owners since they first opened. Nearly half are concerned that the upcoming year may prove to be much more difficult.

The government takes some initiative for helping business owners -

The government has implemented the Electricity Bill Relief System, which reduces the unit price of non-domestic energy agreements. This works differently than a price cap, so be aware that your gas and electricity rates will not be capped. This means that having a fixed contract ought to be less expensive than having variable out or rates. To find out what your discount will be, go to the government website. The scheme will last six months and will be evaluated after three months to determine whether the closing date should be stretched for more vulnerable industries, such as hospitality.

The government's assistance to households works a little differently. The schemes will provide some bill stability for both households and businesses, but keep in mind that the unit rates and trying-to-stand charges are capped, not the yearly bill. This means that as you use more energy, your bills will rise.

It might be able to help firms on a national scale, beginning with a reduction in VAT rates on all fuel costs, such as gasoline and diesel at the pump. It would help cut as well as lower the price of road fuel, potentially lowering the cost of transportation for materials and goods.

A business owner can save money when inflation is rising

It's exceedingly difficult to cut expenses and save cash when everything's becoming more costly. Inflationary pressures mean that you get less for your buck.

Increase the prices -

The most obvious course of action is to raise your rates in order to offset the increased costs you are experiencing. However, there's a chance that this will hurt your rapport with clients and make them decide to do business somewhere else. If you maintain prices at the same level, you risk losing even more money. If you're going to increase pricing, carefully consider whether there are any places where you may more credibly raise prices or charge extra fees.

Cut the growth plan -

Small business owners were fairly optimistic about growth at the beginning of the year. Therefore, delaying any expansion plans now could be a good idea so you can save money for other purposes. Every firm is unique, and you might need to expand in order to prosper or even survive, but if cash is limited, it's something to think about.

Cut the staffing hours -

Having cut back on the number of employees or hours available is the last thing any company owner wants to do. However, there are times when all business owners must make difficult decisions. If it's the only method for keeping your company afloat, it's an important consideration to make. Remember that firing an employee is difficult for all involved parties. Certain procedures must be followed by business owners to ensure that dismissals are fair. See our guide to firing an employee for more information.

Cut operating costs -

When you have high costs, it stands to reason to audit your company to see where you can cut costs. This could imply substituting less expensive products or materials. One obvious issue here is that it may have an effect on the overall quality of your merchandise or service. This could result in customers going elsewhere, causing you to lose money and damage your reputation.

Focus on customer and revenue -

When times are tough, you'll be able to rely on a core group of loyal clients and customers you've built up over time. Anything you could do to play to your company's strengths will be beneficial. During a recession, consumption tends to fall, but by concentrating on your current customers and safeguarding what is already working in your business, you can increase consumption. You can continue to provide high-quality products or services.

Arrange finance -

While you may be hesitant to seek additional financing, especially at a time when interest rates are rising. A specialty small-business loan may be able to provide you with some financial wiggle room and cash flow to fill any funding gaps. Flexible repayment options from lenders may also provide you with some peace of mind when it comes to repaying the loan.

Don’t skip marketing -

This could include well-written emails informing customers of upcoming sales or offers. Your efforts may also include an examination of your competitors' marketing strategies. You can identify any potential deficiencies and make a focused effort to secure new customers who are being overlooked in the market.

Conclusion -

Consider switching to less expensive service or stock suppliers if the aforementioned procedures seem a little too harsh. Verify that you are not subscribed to any services that you no longer utilize. It's also worthwhile to check to see if your company qualifies for tax relief. Our guide on claiming exemptions and tax advantages has more information.