Coping with the cost of living crisis as a business

Rises in the cost of living crisis 

With surging food and fuel prices sending UK inflation to the highest rate in 30 years, households - and businesses - across the country are feeling the pinch. In February 2022, the Consumer Prices Index (CPI) inflation stood at 6.2%. Since then, it's risen to 7%, according to the Office for National Statistics (ONS), while The Office for Budget Responsibility (OBR) predicts inflation to average 7.4% in 2022 and spike at 8.7% in October, with the war in Ukraine compounding the crisis. 

Experts expect that the 54% rise in the energy price cap will soar again before the year's end, with energy bills increasing to around £2,800 a year from October. The Covid-19 pandemic is also continuing to put massive pressure on global supply chains - mainly due to pent-up demand and shipping delays due to lockdowns and staff absences. 

Food prices have also risen, with Brexit contributing to the shortage of HGV drivers. Price hikes are also being exacerbated as Russia's invasion of Ukraine escalates further. 

National Insurance payments have also risen, in line with Rishi Sunak's Spring Statement announcement. Starting on April 6, employees, employers, and the self-employed are paying 1.25p more in the pound for NI.

How has the cost of living crisis impacted businesses?

In April 2022, the accounting giant BDO ran a survey to determine how the cost of living crisis affects businesses. The majority of respondents underestimated the recent inflation rise, with most planning for it to remain between three and five per cent this year. 

Rising costs are posing the biggest challenge for businesses, and nearly a third of respondents are looking for additional finance in response to inflationary pressures. 24% of those surveyed are taking on higher debt to survive.  

In terms of mitigating the impact of the cost of living crisis, a third of companies are raising the prices of their goods and services. 30% are planning to reduce their offering because certain products are becoming less popular with consumers. 

A similar percentage also plans to move cheaper suppliers to reduce costs. However, it's not just rising prices, energy costs, and increasing inflation that pose a challenge to some businesses. 

The UK skills shortage also affects businesses; over a quarter of business owners said finding workers with the right skills is the biggest challenge their business is facing. 

"This is a deeply concerning time for the UK businesses, with inflation and global uncertainty all threatening to stifle the post-pandemic recovery," said Ed Dwan, a partner at BDO.

"The large number of businesses taking on new or increased debt piles in a period of mounting inflation is testament to their challenges. The hike in National Insurance could prove a tipping point for many amid the cost-of-living crisis."

How can businesses cope with the cost of living crisis?

There's no quick fix for businesses looking for ways to cope with the cost of living crisis, but there are steps you can take to improve your cash flow. These include:

1. Raise your prices

Research by the BCC reveals that three-quarters of businesses are increasing their prices to mitigate rising utility and wholesale costs. If you decide to raise yours, bear in mind that some customers will understand, while others might not be able to afford to shop at your business - or could opt for a cheaper alternative. 

Consider being open and transparent about changes to your business to help customers understand why you're pricing things differently. 

2. Cut down on expenses 

Like many other businesses coping with the living crisis right now, you may want to cut down on costs to keep money in the bank. For instance, cutting back could involve changing your service offering or reducing your workforce. 

3. Switching energy supplier

As well as business suppliers, you might be able to save cash by switching to a different energy supplier. You can use Funding Options to see if there's a cheaper tariff for your business. Let us know a few basic details – including your postcode – and we'll show you a customised comparison of gas and electricity deals in your region.

4. Speaking to your accountant

Have you spoken to your accountant about how your business could be saving money? Your accountant will be able to provide you with the "bigger picture" when it comes to your finances, and this will help you foresee any pitfalls before it's too late. 

Your accountant needs to keep up-to-date with any price changes and understand how the cost of living crisis impacts your industry. 

6. Seek business funding 

If you're looking for a cash flow boost or need to fund your growth plans amid the cost living crisis, you might be eligible for business finance. 

For example, if you take customer card payments, a merchant cash advance can provide you with a short-term cash injection that you pay back through a percentage of your customer card payments.

If you need to buy a new piece of equipment, vehicle or machinery to keep your business running, you might be interested in asset finance. Asset finance lets you spread the cost or lease an asset instead of paying for it outright. 

Whatever your needs and plans, see what you could be eligible for.