If you own or run a business, the current economic climate is likely to be a cause for worry.
The most recent survey by the British Chambers of Commerce (BCC) found that 82% of businesses cite inflation as a growing concern, with the Office for National Statistics (ONS) reporting that the cost of living rose by 9.1% in the year to May 2022.
As the costs of raw materials, energy, and labour all rise sharply, there will be pressure on your company’s profit margins. While the BCC says almost two-thirds (65%) of firms expect to raise prices, you may have to find other ways to become more efficient in this period of high inflation.
If you’re an entrepreneur or you manage a business, here are seven practical ways to cope with rising costs.
1. Make sure you understand your financial situation
Firstly, it’s important for you to have a clear understanding of your current financial situation, and to know what operating costs are rising.
Only by understanding the impact of high inflation on your company can you devise a strategy to address the operational areas that you need to review, update, or curtail.
Working with an accountant or cloud accounting can be beneficial here as you can get real-time answers to questions about the rising costs of, for example, energy or raw materials.
Once you understand where (and by how much) costs are rising, you can come up with solutions.
2. Review your energy usage
After the rise in the energy price cap in April, and with another increase likely in the autumn, the rising cost of energy is one of the biggest challenges facing many businesses.
So, think about ways in which you can make changes to your energy usage:
- Install smart meters – as well as helping you to identify where you can make savings, meters will also give you more accurate bills
- Install LED light bulbs. Even though there is an upfront cost, they will save a lot of energy in the long term
- Offer a jumper or fleece option if your employees wear a uniform. This will help them to layer up!
- Find natural ways to cool your premises. Using air conditioning can add up to 30% to your energy bill
- Consider motion sensors in your corridors and toilets that only turn lights on when required
- Get your staff on board when it comes to saving energy. For example, only boil the kettle with as much water as needed, turn off all devices at close of business, run the dishwasher when it’s full and so on.
Going paperless can also help to reduce both your electricity and printing costs.
3. Buy in bulk
Is it possible for you to buy raw materials or supplies in bulk?
Many suppliers and software providers offer better deals when you commit to purchasing more items in one go or if you pay for an annual subscription. Review your budget and work out if you can afford a bigger one-off payment that results in you paying less each month.
4. Review your pricing
By undertaking step one – understanding your financial situation – you will be able to establish whether your current pricing structure is sustainable.
While you may be nervous about raising your prices, unprecedented events can cause your costs to soar.
There are ways you can positively communicate price rises. Be honest about the reasons, reinforce the value you provide, and give customers plenty of advance notice of a price rise (as this can help to reduce knee-jerk cancellations).
5. Review your supply chain
Supply chain management is an important process because an optimised supply chain results in lower costs and faster production cycle.
Review your supply chain at each stage to ensure you’re getting the best value for money. This could involve searching for better deals on your stock, to bulk buying packaging to reduce the unit cost, or reviewing your delivery provider to get a better deal.
6. See where you can make savings
Are you paying for software services that you don’t really use? Do you have subscriptions for services that you could find cheaper elsewhere?
Regularly reviewing your business expenditure to see where you can make savings is excellent practice.
7. Work with an expert
If you’re a business owner, or you run a company, it’s easy for your time to be spent working on the day-to-day issues surrounding your enterprise.
Taking a step back and working on the finances – or on your own personal finances – can be something that you often intend to do, but never find the time for.
Working with a financial expert can add real value here. A financial planner can take on the task of looking after a financial plan that will enable you to reach your goals, allowing you to focus on your business.
You have the peace of mind that your finances are helping you to achieve your ambitions, giving you one less thing to worry about.
Get in touch
We specialise in working with business owners to make sense of your personal and business finances.
To find out how we can help you, email us at firstname.lastname@example.org or contact your adviser on 020 3828 8100.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.