2023 has seen the cost of living crisis continue to escalate, with high inflation taking hold following the COVID-19 pandemic and the war in Ukraine. From policymakers to the lowest-income households, all walks of life have been affected, and even the most established businesses are not immune.
In fact, Office for National Statistics cost of living insights suggest that over a quarter of businesses (26%) are experiencing a monthly turnover reduction. This can be very concerning, particularly if you run a small business, and it’s important to be informed of how the cost of living crisis can impact on businesses so that you can plan accordingly. Here are the main things to consider:
Increased overheads cost
The energy crisis has meant that the prices of oil and gas have risen rapidly over the past few years. Although the UK government stepped in with support at first, much of this has now waned and energy costs are high for businesses. Rising prices have an impact on all overhead costs; for example, the rent charged on your office space may be higher to cover heating bills and you may find yourself buying goods and materials at a premium as other businesses pass on price hikes. In turn, your business will probably need to raise prices too, making the cost of living crisis impact circular.
Reduced custom
Higher prices can deter customers from doing business with you, but it’s also important to remember that they are probably looking to make big savings regardless. Hikes in energy prices have rippled through to bills, and many households are experiencing a real squeeze on their day-to-day living costs. The impact on businesses in non-essential sectors is likely to be highest. After all, these products and services tend to be the luxuries we can live without. If there is a saving there to be made, the less loyal will probably choose to take it, potentially reducing custom for your business.
Higher interest rates
Because of growing inflation, the Bank of England has raised its bank rate considerably over the past year. When this happens, high interest rates are common and it is more expensive and more difficult to borrow money, with stricter approval criteria and greater debt should you meet this criteria. High interest costs can reduce the overall margins of your business. Although it may be possible to weather this storm in normal circumstances, don’t forget that increased overheads may also be in play so you should think carefully about borrowing in the cost of living crisis.
Greater need for help
Ultimately, some businesses will find that the impact of the cost of living crisis is too great and many won’t survive. With nearly double of the amount of compulsory liquidations in April 2023 compared to the year before, seeking professional help before it is too late is vital. We recommend speaking to a business recovery expert if your business is struggling to deal with the impact of the cost of living crisis. They can identify solutions for the problems you may be experiencing and help you to come up with a plan for ensuring your business can get through difficult patches, both now and in the future.
