5 expert tips to help SMEs manage the cost of doing business as prices rise
Small to medium-sized businesses (SMEs) are innovative, flexible, tenacious and creative. We’ve seen these strengths first-hand: throughout the coronavirus pandemic and right now, as the cost of doing business has increased amidst widespread price rises.
In the UK, 61% of the workforce works in an SME. That’s 16.3 million of you, and you generated £2.3 trillion in turnover in 2021¹. As major contributors to our local communities and the national economy, you and your fellow entrepreneurs must get the support you need to stay afloat during these challenging times. We asked former Small Business Commissioner and Tide Cash Flow Expert, Philip King, for his expert advice to help you tackle the issues caused by rising costs.
Table of contents
- Plan ahead – but expect curveballs
- 5 tips for SMEs with the higher cost of doing business
- Government support with energy bills
- Protect your money from theft and loss
- Wrapping up
“Small and micro-business owners are renowned for their optimism and resilience. They usually go into business following a dream, and they are not easily discouraged. The flexibility and innovation they bring to their wider customers are going to be more in demand as the cost of living crisis bites. That positive and tenacious approach, together with focusing on cash flow, will help them through the troubled waters ahead.”
– Philip King, former Small Business Commissioner and Tide Cash Flow Expert
Plan ahead – but expect curveballs
As a small business owner, you’re familiar with tackling situations at short notice and adapting as and when need be. That said, it’s still sensible to plan ahead, even as circumstances change constantly.
Try to predict curveballs that might affect your business, such as the ones explained below, as best you can. Then, you can put steps in place to reduce risks to your business.
5 tips for SMEs with the higher cost of doing business
1. Focus on your pricing strategy
Inflation, which is the rate at which prices rise, has increased sharply, reaching a 40-year high in July before easing slightly in August². Although expert predictions vary, inflation is expected to remain high this year.
Philip suggests considering how your customers will react to continuously rising prices. They could affect demand for your products or services – and you’ll need to factor a potentially lower number of sales into your cash flow forecast.
You’re not alone if you need to raise your prices due to your costs going up. Take a close look at your pricing strategy to find what makes the most sense.
💡 Check the news so you’re aware of new predictions and developments that could affect the cost of doing business. Know your limits, though – it’s a tough news cycle, so find ways to stay informed without harming your mental health. For example, you could set a time to check the news so you’re not overwhelmed all day. Keep up with good news, too, such as our small business success stories!
2. Communicate openly
Most people in the UK are aware and sympathetic to how rising prices have driven up the cost of doing business. So, it’s a good idea to be open and communicate with your stakeholders, especially if you need to make changes to stay afloat.
- Speak to your suppliers. You could discuss how you could share the burden of increased costs between your businesses. Examples include devising a payment plan to spread the cost of the goods/services you’re buying, negotiating better credit terms or asking for an early payment discount
- Be honest with your customers. Telling them in advance about changes to your business, such as price increases, shows that you value them. This can help with customer retention and brand reputation
- Network with other small business owners. You could get moral support, share advice and hear about potential opportunities to collaborate or to refer each other to new clients
3. Keep checking your operating costs
Most SMEs have, and continue to, search for ways to reduce costs, but Philip highlights two essential operating costs that may need a closer look.
Build a clear picture of the cash flowing in and out of your business and consider ways to mitigate the increase in soaring energy costs. For example, why not check if you can get a better deal by switching to a renewable energy provider?
Prime Minister Liz Truss also introduced an energy price cap for consumers and businesses on 8 September 2022, which you can learn about further down in this blog post. More details and other support may be announced by the government in an emergency budget later this month, according to news sources.
If you’ve got employees, you should always be thinking of ways to support and retain them, especially so during these difficult times.
Charlotte Bridgeman, our Director of Talent Acquisition, comments: “Irrespective of economic conditions, creating a positive employee experience is paramount. Talent is the most valuable driver for sustainable business growth.”
Your employees might come to you and ask for wage increases, but you can also proactively support them with other things like making sure they’re paid on time and implementing or updating your financial well-being policy.
Charlotte continues: “Employees are at the heart of the business, especially in smaller structures. Creating a framework for their development and well-being with regular, open two-way conversations and building an inclusive culture will help you retain your talent. It is also important to monitor and measure employee sentiment so that you can give support where it’s most needed in your organisation.”
“Post-pandemic, you should think about what the future looks like. Take a close look at your needs and your employees’ to see what type of future workplace could work for your specific business.”
4. Monitor your cash flow
Businesses fail when they run out of cash, so you should plan and monitor your cash flow more closely than ever, urges Philip.
He comments: “If you’re going to need additional funding, look for sources and make applications as early as possible. There’s nothing worse than trying to raise funds when things are dire, you’re already in a hole, and the funds are critical right now.” Check out this list of 10 ways to fund your small business.
Getting your customers to pay you on time is one of the largest cash flow sources. That means re-evaluating your payment terms, strengthening your invoicing process and knowing your customers well. These topics are covered in our Masterclass series: Your step-by-step guide to mastering your cash flow.
5. Learn from the lockdowns
Similarly to the coronavirus pandemic, it’s likely that hardly any small business will be left unaffected by the cost of living crisis. Look back at what you and other entrepreneurs did during the pandemic to successfully adapt and adjust their operations to see if there are any methods you can implement now. There’s advice and stories from your fellow entrepreneurs in our Coronavirus: Support and recovery hub.
Philip reminds small business owners that there’s a greater likelihood that your key suppliers might go bust, and your customers might reduce or stop spending with you. Keep your pipeline open and line up alternatives. That way, you’ll know which suppliers to go to if needed and be able to find new customers without too much delay.
Also, keep an eye out for trends in the prices of key materials or services you need, so you’ll know if and when you need to find alternative products or suppliers.
Government support with energy bills
On 8 September 2022, Prime Minister Liz Truss outlined a plan to support consumers and businesses with spiralling energy costs.
“The new Prime Minister has acted swiftly by limiting energy bill rises for consumer households at £2,500 annually until October 2024. This will help micro-businesses where personal and business finances are intertwined,” says Philip.
Truss also announced a scheme to provide businesses and other non-domestic energy users with a similar level of support as consumers are getting. The scheme will run for 6 months initially – further details and other measures of support are yet to be published. We may hear about them in an emergency budget held on or around the 22 September.
Philip continues: “The announced help for other businesses is limited to a six-month price cap with a review in three months to determine which sectors should benefit from further support.”
“This will help small businesses get through the winter months, and the emergency budget in due course should provide further clarity to ease the uncertainty, and assist future planning.”
Protect your money from theft and loss
Fraudsters thrive during times of hardship. They exploit the panic felt by many, and use it to prey on people using scams based on the economic climate. The cost of living crisis is no different – fraudsters have targeted over 40 million people in the UK so far³.
Get up to speed with the common types of fraud and how you can protect yourself and your business against them.
Also, make sure you’re aware of the information about your Tide account that we won’t ask you for if we contact you. It could help you spot if you’re being targeted by a fraudster posing as us. Learn what we’ll never ask you for and how you can verify that it’s us contacting you.
We understand that as a small business owner, the effects of the cost of living crisis on both your home and your business are hard to bear. For more support, look at 5 ways to manage entrepreneurial stress and overcome anxiety.
Philip says: “At times of adversity, they [small businesses] need to hold their heads high, show their resilience and focus on survival as they always have and always will.”
Sources used for this article (checked as of 14 September 2022):
- The Federation of Small Businesses – UK Small Business Statistics
- The Guardian – UK inflation eases to 9.9% but remains close to 40-year high – as it happened
- Citizens Advice – Over 40 million targeted by scammers as the cost-of-living crisis bites
Photo by Firmbee.com, published on Unsplash