How the cost-of-living crisis is impacting small businesses

The cost of living has been increasing across the UK since early 2021 and in April 2022, inflation reached its highest recorded level, and the ONS estimates that it is now at its highest since around 1982, affecting the affordability of goods and services for households.

Consumer prices, as measured by the Consumer Prices Index (CPI), were 9.0% higher in April 2022 than a year before. Another important driver of inflation is energy prices, with household energy tariffs increasing and petrol costs increasing by the week. From April 2021 to April 2022, domestic gas prices increased by 95% and domestic electricity prices by 54%, due in part to a return of global gas demand as pandemic restrictions are lifted, and lower than normal production of natural gas.

Considering all of these factors, people, regardless of income categories, have less disposable income than they once did. With less disposable income, this means people are far less likely to buy things that aren’t essential – which will in turn have a knock-on effect on businesses. 

A recent survey found that three-quarters of small and medium-sized companies are worried about the long-term impact the cost of living crisis, soaring energy bills and rising inflation will have on their business – as people stop shopping as much.

The latest roundtable hosted by the Great British Entrepreneur Awards and Aston Lark, saw a group of experts provide their own experience with this topic, providing their expert advice and opinions on how the cost-of-living crisis is impacting small businesses. 

Having to make sacrifices 

We already know there is a knock-on effect from consumers’ financial situations, but what direct impact is the cost of living crisis having on small businesses? 

Andrew Smith, client director at Aston Lark said, “The prices of office spaces are going up, so there are a lot of businesses that are now choosing to work remotely, which seems to be the norm these days. Businesses need to react to the increase in the cost of living, to keep themselves going…

“But, how can they do this? One way is to review all of your suppliers, as supplier costs are going up. Then also look at hybrid working as an option, and reduce your office space if it isn’t needed. There’s a lot of wasted office space now that people are used to working from home and are wanting to work from home more – so it’s about reducing those costs to help keep you going as a business” he continued.  

So, take a step back and evaluate your business model today, and see which outgoings are essential for your business and if there are any ways you can cut back to save money. E.g. working from home if the office isn’t being used, energy savings obligations in the office, etc. 

Employee’s financial wellbeing 

As well as considering financial changes to the business, such as rent, supplies etc. it is also important to consider how your employees are being affected by the cost of living crisis. 

In any business, your employees are key players in the success or failure of your business, and if your employees feel they are not being paid enough to help them survive in this crisis, they may look for employment elsewhere. However, with the current crisis on our hands, employers are feeling that they may not be able to provide their employees with everything they need to stay. 

Yogesh Gupta, CEO of Nila Technology said, “Employees are assets for us, but at the same time the way we have been impacted recently because of the current crisis, access to finance is not as easy as it once was – whether it be through investment or any fundraising. So that’s putting a lot of pressure, on us and everyone down the chain.”

“If you don’t get the money, we can’t pay them enough, and if you can’t pay them enough, they’re going to go elsewhere. We’re not wanting to cut salaries, but we are also not able to increase their salaries currently. It’s a double edge sword that is hurting us,” he added.

So, if you’re unable to increase salaries, consider how can you help your employees feel financially stable and secure at this time, and how you can show them you appreciate them so that they stay – this could be through additional benefits such as healthcare, childcare, or more holiday hours.  

Supply Chain Disruptions

There has been a lot of disruption to the supply chain in recent years, most recently being the war in Ukraine, as there are a lot of business and manufacturing facilities that come from Ukraine – therefore many businesses who were using these facilities are not having to use new suppliers, which may increase costs or time frames. 

Many businesses are also still being affected by the impact covid had on themselves and their supply chain. Covid is the leading factor in the cost of living crisis we are in at the moment, therefore many suppliers and businesses will be raising their prices to help stabilise their business – this is then having a domino effect as businesses are having to pay their suppliers more, and then becoming more financially unstable themselves. 

Amber Smithwick, co-founder of Aurora Kusina, said “I run a Filipino street food business, and restaurant. So it’s really difficult to get ingredients from East and Southeast Asia at the moment – some supplies and ingredients costs have risen to 200% more than before.” 

So, how can businesses tackle this? Andrew Smith, client director at Aston Lark said “Shop around the market!”

“Suppliers are putting their costs up, so it’s also worth looking around and trying to get a deal from another supplier – at the end of the day your existing supplier doesn’t want to lose your business, so if you go back and say, I’ve got a better price from somewhere else, they’re likely to match your price as they’ll want to keep hold of you. So it’s things like this that you can do to avoid those costs that are going up,” he added. 

The importance of having a competent and skilled broker 

As times get tougher more and more businesses are likely to take out loans, to help them get back on track and stay afloat financially. For businesses doing this, it’s incredibly important to take out reliable Trade Credit Insurance. 

Andrew Smith, client director at Aston Lark said, “Having Trade Credit Insurance is key to making sure that a business is protected against insolvency and payment issues from its customers. It helps them to avoid bad debts and if in the case they sustain a bad debt, the insurance covers it so they don’t lose money, which in some cases can be detrimental to a business.”

It is so important to have a competent and reliable insurance broker, like Aston Lark, who can support you through claims but also guide you through whichever insurance product you may have. Having expert account handlers who really know their way around the market and can add real value with exceptional service, so that all aspects of insurance are made easy and stress-free for the client.

Now more than ever it is essential to ensure you’re taking a step back and analysing what’s working and what’s not for your business. Are you spending where you could save? What can you do to retain staff? And how can you plan for the future?