The cost of living crisis is hitting small businesses hard. Latest figures from the Office for National Statistics (ONS) show that 5,629 businesses went bust in the three months to the end of June, the highest number since the UK faced the global financial crisis in 2009.
Soaring bills and shrinking economic growth are expected to place further pressure on business owners in the months ahead.
Here, we look at some of the particular challenges that businesses face, and what they’re doing to safeguard their future.
1. Manage price rises carefully
Rocketing inflation and stock costs are leaving the majority of businesses with little choice but to hike prices. But this can be tricky when consumers are tightening their belts as living costs soar.
Betsy Benn, 47, runs online luxury gift retailer Betsy Benn Link opens in a new window, making personalised gifts and Christmas decorations. She says: “Our worry is that people will start to cut back on gifts in the run up to Christmas which is usually our peak trading period. Without that peak, we might not have enough in the bank to carry us through the leaner months".
She’s had to put up prices to keep trading because of stock cost increases. “But we’re experimenting with ways to manage this, such as hosting open studio days where customers save 25% if they collect their orders in person. That way we both save on postage costs. We’re also looking at bundles, where customers buy three or four decorations for a graduated discount".
She adds: “We’re always looking for cheaper packaging to save money, and more efficient ways to make the same things without compromising on quality".
Try and keep your messaging to your customers positive when you’re announcing price hikes. You may apologise for raising prices but highlight the value you’re adding to your customers’ lives during a tough economic time.
2. Check your options if you need funding
Small businesses face the double whammy of soaring stock prices and essential bills. This can make getting financial support wherever possible essential for survival.
Bethan Thomas, 39, is founder of HotTea Mama Link opens in a new window, making award-winning women’s wellness teas. She says: “This year is terrifying for us. The cost of tea that we import from Europe and Asia has soared – we’re expecting 40% increases from January, but retailers won’t accept price increases. We’re looking at various ways to save costs, such as changing the countries we buy our stock from.”
“Fortunately, as a small but well-established business we’re lucky to have support from our bank with overdraft finance to manage the cashflow squeeze. We’ve also taken advantage of a government-backed recovery loan Link opens in a new window as we built stock to launch into Holland and Barrett.”
Bethan borrowed £30,000 in January at a rate of 6.16% over six years. “The major benefit of the loan is that it’s given us enough of a buffer for peace of mind. Also, the government guarantees 70% of it if something terrible were to happen and we couldn’t pay,” she adds.
3. Maximise support for energy costs
Spiralling energy costs are a huge concern for small businesses. The energy price cap has been frozen at £2,500 for the average household until April, but many small business owners will pay a lot more. Medium-sized businesses such as pubs and restaurants may benefit from the Energy Bill Relief Scheme Link opens in a new window, which caps energy prices for firms for six months from 1 October 2022. Even so, prices are still double what they were in October 2021.
If you’re worried about your bills, contact your supplier to see what help it can offer. Many are offering grants and access to hardship funds to make bills more affordable.
You may also be able to get subsidies on the cost of more energy-efficient equipment to run your business. Use the Gov.uk Link opens in a new window business finance and support finder to see what help is available. You could also ask your local council Link opens in a new window about small business support funding.
Staying in control of your business and money can feel difficult at the moment with the constant price rises and inflation at a 40-year high. But our free M-Track Link opens in a new window insights dashboard can help.
M-Track, which is free for Virgin Money Business Current Account Link opens in a new window customers, gives you greater control of your business’ performance with essential apps in an all-in-one dashboard.
4. Lean on your network
You can learn a lot from other entrepreneurs and business mentors when it comes to managing the cost of living crisis.
Sophia Procter, founder of Munchy Play Link opens in a new window, and a mentor on the Virgin StartUp Link opens in a new window programme, says: “Business mentorship is something you can't underestimate in value. Having a neutral ally to help guide you is one of the greatest assets for growing your business and developing mental resilience.”
For example, Virgin Money’s collaboration with Virgin StartUp Link opens in a new window helps you and your business grow with access to online resources and events. From podcasts to masterclasses, they’ve teamed up to help bring you the support, tools and training you need whether you’re just starting out with an idea or a successful business owner looking to make that next step.
Procter says: “The StartUp scheme is a great way to connect with small business founders. In turn, you can also offer internal ‘buddying up’ where team members are partnered to support each other, it’s a great tool for building team dynamics too.”
There are also Facebook groups such as the Lightbulb – Entrepreneur and Press Hangout Link opens in a new window group of business founders and journalists seeking case studies and experts.
5. Be flexible
Consider where you can cut costs and rethink your sales strategy to respond to challenges you face. For example, you may be able to move your team from a rented office to home working for a while or cut third-party contracts such as PR or software services.
Millie White, 28, founder of curated gift company The Little Leopard Co Link opens in a new window, has cut her marketing spending over recent months. She says: “I was investing £750 a month to run Facebook ads, plus £1,000 on ad spend. I’m now doing this work in-house to reduce my overheads. I’m also putting the time aside to complete any necessary PR activity.”
Afsaneh Parvizi-Wayne, 57, runs Freda Link opens in a new window, a natural and organic period and bladder care product subscription service, adds: “We can take advantage of their ability to pivot fast and think outside the status quo.” She shifted her focus from consumer sales to business-to-business sales. “We’ve signed our first large hotel chain, and it will be putting our period kit in their guest rooms,” she explains.
Being flexible as a business includes cutting the smaller expenses, too. So, take time to go through your operating expenses. Could you cut day-to-day expenditure such as printing costs, or even coffee? Paying attention to the small costs could save your business a chunk of cash over the long term.
It’s undoubtedly a tough time for small businesses – but keeping a check on where your money’s going, leaning on your network, and making the most of any available support will put you in the best possible position to cope with the financial challenges.
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