As the cost of living crisis worsens business owners are asking: How can my business manage the cost of living crisis?
While headlines focus on consumers and the rising cost of fuel and food, relentless rises in inflation and price increases are hitting businesses, too.
With both the pandemic and Russia’s invasion of Ukraine hitting the supply chain, prices of basic supplies are spiralling. As a result, doing business is becoming more expensive. And companies face rising energy bills that eclipse those for consumers. Such increases will be difficult for small businesses to manage.
For many business owners, this is a difficult time and they maybe worrying about the future. But our advice is not to bury your head in the sand, and start planning and looking ahead.
How can my business manage the cost of living crisis?
While there’s little you can do when rising costs, such as fuel and energy, are rising, there are measures to protect your business.
Cash flow forecast
Preparing a cash flow forecast weekly can be done quite simply with software such as Excel. But it’s advisable to plan further ahead, as you’ll be able to see any issues in cash flow before they become a problem.
In an earlier blog, we looked at what cash flow forecasting is and how it helps. Knowing you have sales in the pipeline, for example, and revising your payment terms can help you prepare for any disruption. One thing to remember is that your VAT is calculated over 12 rolling months and not in line with your business’s financial years.
Getting that wrong could be costly!
At the moment, reports across the business community are that cash flow is slowing! You really can’t ignore that. Business owners need to be aware of how they’re going to manage their money.
At Concept Accountancy, we’re trialling a new piece of software that can produce 3-year projection modelling and a myriad of scenarios. Once we decide whether to introduce it to offer a new service for clients, we’ll let you know.
Make sure your business is ready for the cost of living crisis
Cash flow forecasting will help you prepare – but the exercise is only as good as the figures you input. So be aware of changes that are coming, such as more energy price increases later this year. Taxes and NI contributions have already risen, but other increases are on the horizon.
For example, from April 2023:
- Corporation Tax increases from 19% to 25%
- Measures taken during the 2020 lockdown come to an end. This includes the business rate multiplier being unfrozen and the 50% relief for retail, hospitality and leisure sector
- R&D tax credits will be restricted money only spent on projects in the UK
The key is to keep up to date with changes. While April 2023 seems a long way off, it will soon be here and failing to prepare means you may need more income to cover rising costs.
With your costs rising, it’s necessary to pass them on to customers and clients. You may want to try and protect them from rises, but it’s something most businesses are doing. Research by the British Chambers of Commerce shows 3 in 4 businesses are increasing prices to mitigate utility and wholesale costs.
Be transparent about why your prices are rising when contacting customers. Of course, some will understand while others may complain, but absorbing all the costs yourself could jeopardise your business.
Cut down on expenses
Cutting costs will help ensure there’s more money in the bank. You may need to change how you run your business; for example, downsizing your premises to reduce costs. Most of us managed to work from home during the pandemic, and maybe doing that again could cut your overheads – even if it’s just for the short-term.
Reducing the number of outside consultants or even your workforce could be an option. Decisions like these will be tough, so you need to carefully assess your situation.
Look for funding
If you’re planning new products and they are key to growing your business, then it maybe wise to consider business finance. Taking on finance at a time of rising costs sounds crazy. But if helps you buy essential equipment, financing options can make the most of your income that helps your business survive.
Switch energy supplier
There’s a chance you maybe able to reduce your energy costs by switching supplier. Whilst the savings might not be huge, some savings are better than none! With energy bills rising, being able to fix a price could help make budgeting easier to manage your finances.
Speak to your accountant
We’re bound to say this, but it’s true: accountants are great at helping you with your business finances. Getting an overall picture of your financial position and knowing what tax efficiencies are available could help make life easier. And as it’s ‘bread and butter’ for accountants, they really can help you see pitfalls before it’s too late.
If you need an accountant to help your business, then you can contact our team today.