Navigating the Storm: A Small Business Owner's Guide to the Cost of Living Crisis
Credit Max Larochelle
The cost of living crisis has in the news for what seems like forever and seems to cast a long shadow, and for small business owners, it feels like navigating a never ending storm.
Business are experiencing soaring energy bills, rising supplier costs whilst customers have reduced disposable income and there is reduced customer confidence, the pressures on businesses are relentless. Recent reports show that a staggering 88% of small businesses still feel threatened by this ongoing crisis, and are thus forced to make tough decisions.
Despite these challenges, small businesses are buildingresilience and innovating strategy and ways to cope with the ever growing pressures.
While we can't control the economic winds, we can make adjustments to our plans and connect with like mind individuals and business to ensure resilience.
Here's a look at some of the hurdles and practical strategies that could help your business not just survive, but thrive, through these turbulent times.
The Headwinds We're Facing
It's crucial to acknowledge the specific impacts hitting small businesses:
Rising Operating Costs: Energy, rent, and materials are all seeing significant price hikes. Unlike larger corporations, small businesses often lack the economies of scale or negotiating power to absorb these increases easily.
Supplier Price Increases: Many small businesses are experiencing higher charges from their suppliers, yet struggle to pass these on to their own customers for fear of losing business.
Reduced Consumer Spending: As household disposable incomes reduce, consumers naturally cut back on spending, impacting sales volume and revenue for not just luxury items but even some normal household spending.
Cash Flow Volatility: The combination of rising costs and reduced sales leads to cash flow pressures and shortfalls, cash is a critical lifeline for any small business.
Staffing Challenges: It's a delicate balance. While businesses need to control costs, employees are also feeling the pinch and may seek higher wages, leading to potential recruitment and retention issues.
Charting a Course: Strategies for Survival and Growth
So, what can small business owners do to weather this storm?
Improve cash flow by reviewing and reducing unnecessary costs.
Ruthless Expense Review: Go through every single expenditure with a fine-tooth comb.
Can you renegotiate contracts with suppliers?
Are there cheaper alternatives for materials or services?
Could you move to a smaller premises or embrace remote work to reduce energy and rent?
Energy Efficiency: This is a big one. Explore energy:
efficient lighting,
smart meters.
encourage staff to reduce consumption.
Look into grants or schemes for energy-saving upgrades.
Outsourcing: Consider outsourcing non-core tasks It can be more cost-effective than a full-time hire. Departments to review
Accounting and finance
Marketing.
Customer Services
Human Resources.
Optimise Your Pricing Strategy:
Know Your Numbers: Understand your true costs – both fixed and variable – and your contribution margin for each product or service. This will inform your pricing decisions.
Strategic Price Adjustments: While nobody wants to raise prices, it may be necessary.
Do it gradually and communicate the value proposition clearly to your customers.
Consider "price anchoring" or "bundle pricing" to make price increases more palatable.
Value-Driven Offerings:
Can you introduce lower-cost alternatives or entry-level products/services to appeal to more price-sensitive customers?
Master Your Cash Flow:
Tighten Credit Control:
Ensure invoices are sent promptly
Chase late payments diligently.
Explore invoice finance options if tied-up cash is a recurring problem.
Forecasting is Key:
Develop robust cash flow forecasts
regularly monitor them- his helps you anticipate shortfalls and take proactive measures.
Consider Financing:
If your business is viable, has long-term growth potential- exploring loans or other funding solutions can provide crucial liquidity during challenging periods.
Strengthen Customer Relationships:
Loyalty Programs:
Reward existing customers with loyalty schemes, discounts, or exclusive offers to encourage repeat business.
2. Exceptional Service:
In a competitive environment, outstanding customer service can be a key differentiator, making customers more likely to stick with you even if prices rise slightly.
3. Effective Communication:
Be transparent about any necessary changes and highlight the value you provide.
Innovate and Adapt:
1. Embrace Technology:
Look for digital tools and automation that can improve efficiency and productivity, saving time and money in the long run.
2. Diversify:
Can you diversify your product or service offerings to reduce reliance on a single market segment?
3. Explore New Markets:
Are there new customer segments you could target who might be less impacted by the cost of living crisis, or who are looking for new solutions due to current market shifts?
Support Your Team:
Open Communication:
Acknowledge that your employees are also feeling the pinch.
Foster open communication about the business's challenges and your efforts to mitigate them.
Ask for their support employes who feel valued will go the extra mile to help push your business further.
2. Flexibility and Support:
Where possible, offer flexible working arrangements or other non-financial benefits that can help alleviate some of their personal cost-of-living pressures.
Retaining good staff is far more cost-effective than recruitment.
The cost of living crisis presents unprecedented challenges, but small businesses are known for their agility and resilience.
Remember, you're not alone in this and advisors such as Stanton Accountancy can help you become more resilient, guide and support you through these volatile times and come out of it stronger than before
Why not contact us to see how we can help you?