With double-digit inflation likely to persist for at least the short-term in the UK, how can small company owners shield their businesses from spiralling costs?
What is the outlook for inflation in the UK?
The CPI measure of inflation rose to 10.1% in July – the 10th consecutive monthly rise.
However, the Producer Price Inflation figure is far higher – at over 22%.
According to the OECD, CPI inflation is forecast to remain high until early 2023, before falling to around the 5% mark by the end of 2023.
Assuming that this forecast is borne out in reality – this means that businesses face at least 18 months to 2 years of sustained inflationary pressure.
How will inflation affect small businesses?
Although inflation inevitably affects all businesses in some way, some firms are more vulnerable to rising costs than others.
This is particularly the case if your company is reliant on energy (which doesn’t ‘benefit’ from the consumer price cap). Or if you need to purchase goods and services which have risen in cost.
5 things you can do to shield your company from rising inflation
Whatever you do, don’t bury your head in the sand. Inflation is here – and is likely to stay for some time.
Even if you don’t think that you – as a business owner – will be significantly affected by rising prices, no one is truly isolated.
If you are able to escape the worst effects of inflation in your business, your personal post-tax income from the business is likely to decrease due to the impact of rising prices on consumers.
Here, written by the LCH team, are some steps you can take to minimise the effect of inflation on your business.
1. Increase your prices
According to a BCC survey conducted earlier this year, 75% of firms are raising their prices as a result of inflationary pressures.
Price increases are inevitable for most businesses, although many firms will be forced to absorb some of the increased costs, decreasing their profitability.
Your ability to raise prices will depend massively on your circumstances, and the type of industry you operate in.
2. Reduce your overheads
Many households are cutting down on discretionary spending – such as TV subscriptions, energy use and holidays. Similarly, can you – as a business – identify regular costs which you can eliminate, or cut down on?
Can you save money by changing your energy or broadband supplier? Are their regular outgoings that you haven’t thought about for a while? Things that your business could do without – for the timebeing?
Can you re-negotiate contracts with your suppliers? Or you might be forced to cancel some third party contracts altogether.
Although it is usually a last resort, reducing the number of employees you have, or reducing their hours might be a consideration too.
If you rent office space – this is one of the first things to go during economic slowdowns. A remote office model is not only more cost-effective, but may allow you to retain employees you otherwise might have had to let go.
3. Go overboard on customer service
This is a good time to keep your existing clients happy. Your clients will be looking at ways to cut costs too, so make sure that your business isn’t on their shortlist for the chop.
If you’re forced to increase your prices, are there any value added services or products you can provide to keep your clients happy with no significant impact on your bottom line?
4. Refinance any borrowing
Although interest rates are also on the rise, borrowing remains very low by historical standards. If you need to free up some cashflow, you may be able to refinance any loans on better terms.
5. Streamline your business
Although the UK economy is often linked to low productivity (unfairly or otherwise), small company owners are often the hardest working and most productive individuals.
If you can’t cut costs, there may be other ways to make your business more efficient – which in itself will lead to efficiency savings.
Above all – small company owners are going to have to work harder – probably for less money, for some time into the future.
If you have any good ideas which could help fellow business owners to weather the inflationary storm, we would love to hear from you. Simply contact us and we will get right back to you.