How Is The Current Cost Of Living Crisis Affecting UK Businesses?

The past few years have proven to be extremely turbulent for many businesses across the country. With a global pandemic, rising living costs and huge spikes in inflation, leaders across the UK have had to show major resilience to keep their businesses surviving.

To find out more about the challenges businesses are facing at the moment, and provide advice on how these can be addressed, we surveyed 1,000 people in business management roles on the biggest concerns they have for the stability and growth of their company in this financial year.

The cost of living causes concerns

Our findings revealed that nearly three quarters (72%) of business owners are concerned that the current cost of living crisis is going to affect their company in some way, while 23% of leaders even predict that their business may not survive the financial year if prices continue to soar.

Two thirds (68%) think their customers will no longer be able to afford their products, while more than six in ten (67%) think they will lose clientele as their services will be bought less often.

According to our data, the five biggest causes for concern for business leaders this financial year are:

• Cost of fuel
• Cost of energy
• Cash flow
• Employee retention
• Transportation costs

Cost of Fuel

Fuel prices have hit record highs recently, which will affect businesses both directly and indirectly, so it’s no surprise the price spike in this area was found to be the biggest concern for business leaders across the board.

The most affected companies are likely to be those involved in delivery and transportation, as costs to provide their services will be directly impacted. However, other businesses can still be affected by the rising fuel prices, as it can affect supply chains and the day-to-day movements of employees.

Companies with vendors that transport goods will likely have the increased costs passed on to them, as their suppliers try to navigate how to reduce the impact on their own business first.

Cost of Energy

The cost of energy is another major worry to UK businesses at the moment, with two in five (42%) managers citing this as one of the primary threats to their stability this year.

According to recent reports, SMEs have faced an average gas bill hike of over 250% in the last year.

Additionally, as opposed to domestic customers, businesses are not covered by the energy price cap, despite calls for them to be, which further increases the risk of their energy bills rising more and more throughout the year.

Cash Flow

Perhaps unsurprisingly, our data has shown cash flow has also been named one of the top concerns for business leaders this financial year.

Maintaining healthy cash flow is an extremely important aspect of running a successful business, but it’s proving harder and harder to do for many companies across the country.

This is most likely the case for start-ups and SMEs who don’t have massive cash reserves to support them when financial challenges arise. This could be especially true if they’re faced with higher costs and the prospect of losing customers, as they may need to be more selective on how they spend their money now costs are soaring across the board.

According to recent data by the Confederation of British Industry (CBI), retail sales have been falling across the board, with clothing stores and specialist food shops hit the hardest, showing customers are prioritising key expenses as they feel the cost of living squeeze.

Employee Retention

Employee retention was also cited as a source of stress for businesses, and this will come as no surprise as we’ve recently seen record numbers of people leaving their jobs in what has been coined ‘The Great Resignation’.

In fact, a recent Statista report on career moves showed that during the fourth quarter of 2021, job-to-job moves in the UK hit record levels. 337,000 of these moves were resignations, with employees deciding to leave their roles voluntarily, rather than being dismissed.

Transportation costs

Transportation costs, another major cause for concern cited by business leaders in our research, have also increased dramatically over the past year.

According to the TEG Road Transport Price Index, the average price-per-mile for haulage and courier vehicles increased from 101.5 points to 116.8 points between January 2021 and January 2022 – a 15% year-on-year increase.

What can be done to ease the burden?

With the clear strain that has been placed on businesses, we have put together some tips on how to ease this burden, as well as rounding up some other useful resources that business leaders can access during this challenging and worrying time.

Review your company’s expenses

• Suppliers: Reviewing suppliers can be a good first step to potentially start cutting down on some costs. To start with, do your research on other potential providers and gather some quotes.

• Premises or office space: Reviewing your premises or office can also be a way to reduce costs. With the rise in employees working remotely, and many adapting a hybrid model after the pandemic, it’s important to consider whether you still need the same office space as you did before. If your business can function with a single central hub that employees can work from only once or twice a week, you may be able to downsize and implement a hot desking system. This may also help with your energy bills, as you will not need to keep your office space heated and lit up for as long as you did before.  Alternatively, if you own your premises, you can investigate subletting a proportion of the space so that you can access some extra capital.

• Funding Lastly, you may want to review your funding facility. The Covid pandemic and the current cost of living crisis have only exacerbated the challenges many businesses were already facing, making it increasingly difficult to run a company without the correct funding in place. Now might be the right time to have a review and ensure that you are accessing the best type of funding with the most competitive terms, or perhaps consider if you could be eligible for Government-backed loans.

You should then call up your current supplier, discuss the other pricing options you were given with them and see if they can match them, or even give you a better deal.

Research loans and other useful resources

The Government Recovery Loan Scheme is now running until the 30^th of June 2022, so there is still time to take advantage of the government-backed facility if your business needs it. The scheme is open to small and medium-sized enterprises and businesses will be able to borrow through the scheme, with a maximum of £2 million available. The government will guarantee 70% of all funds are paid out to the lender.

Small businesses can also claim a tax deduction for all business-related vehicles used for work (personal vehicles are classed as anything you use for travelling to and from work). This covers not just cars, but also motorcycles, vans and even bicycles. While you cannot claim directly for fuel costs, this can be a way to ease transportation costs.

How much you can claim will depend on whether you are using a vehicle that’s been bought or leased with your own money or if your vehicle is owned or leased by your employer.

For those worried about tackling rising energy bills, the Government has schemes and grants that they can apply to, depending on your location. Business owners can check whether any are open or available in their area on this page.

Let’s Talk has information on business funds some charities offer, and how you can apply to these. You can also find advice on managing business debt and budgeting through the Business Debtline from the Money Advice Trust.