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Taming the inflation beast 

The easing of restrictions and return to some sort of normalcy after the worst ravages of the pandemic was supposed to bring fresh life and optimism to UK businesses.

But a perfect storm of global supply shortages, hugely increased energy costs, Brexit and the crisis in Ukraine has unleashed businesses’ worst nightmare – soaring inflation.

At the time of writing, the headline inflation figure (April 2022) was 9% year over year. In March 2022 the equivalent figures was 7%, and the Bank of England has suggested the next number to be announced will be 10% (for May 2022).

On top of that, factories increased their prices by 14% over the 12 months to April, the biggest jump since July 2008, further fuelling inflation.

Rampant inflation comes with a heavy cost to business. A recent Office of National Statistics report concluded that almost 500,000 UK small businesses are “at risk of going bust within weeks”. It said 40% – two million – of them had less than three months’ worth of cash left to support their operations. Of those, about 10% – or 200,000 – were in “serious trouble”, and that another 300,000 “have only got weeks left”, according to the Federation of Small Businesses Chair Martin McTague.

So what’s to be done?

For businesses with a chance of survival the real challenge is how to balance mushrooming costs by increasing your prices while not driving away those all-important customers.

So it’s vital that you take stock of your financial position – and do it now! Identify accessible finance options should it be required – a fixed-rate loan being the best of these options. It’s going to be a bumpy few months ahead, but identifying a clear plan now will help them successfully navigate out the other side.

If you’re an SME, you have an advantage over larger businesses in that they can be flexible, changing direction quickly in rapidly changing circumstances. With this in mind, revisit your business plan, scrutinising what you can do to negate some of the worst effects of inflation.

Our Kitchen Table Guide can help you through this process. Download it here

Constantly re-visit this plan and don’t be afraid to change course. Enlisting the help of a trusted business advisor will give you a ‘fresh pair of eyes’, helping you to identify where you can make cost savings without damaging your ability to do business.

It is vital at this time that you retain the key staff that make your business work, so look after them. If you can’t afford to give them pay rises then incentivise them in other ways, such as flexible working arrangements, extra holidays and generally looking after their welfare.

Even making the workplace a more pleasant environment will help improve staff morale, and won’t cost you a fortune.

Finally, talk to your customers about raising your prices. This can be done in small increments, rather than in one big hit. Donald Boyd, Head of Growth at accountancy firm and business advisor Azets, says businesses have to be brave. He said: “My message to businesses is to be brave and have upfront conversations with customers to increase prices to absorb rising costs – in the short to medium term we are finding anecdotally that margins are holding up.”

If you’re struggling…

Perhaps the most important thing to remember is that you don’t face up to the problems wrought by inflation on your own.

A quarter of Britain’s SMEs are ignoring their financial situation for fear of discovering how bad things really are, according to PayPal’s latest ‘Business of Change’ report.

However, it found that small business owners who do take their “financial wellness” seriously reported that they have more self-confidence (45%), have saved for the future (42%) and experience less stress (39%).

So seek help. Professionally, your accountant can help steer you through the maelstrom, advising on, for example, the best avenues for fund-raising, be that grants, loans or investment (they are likely to have connections in this area).

If you believe your business is insolvent, or approaching insolvency, speak to one of our business rescue and insolvency experts, call us on 01455 555 444 or email [email protected] and we can call you back.