The latest business survey from The Office for National Statistics (ONS) showed nearly a third of companies have recently seen a higher-than-normal increase in the cost of materials, goods, and services.
10% of businesses reported increasing the price of goods and services in early September 2021– up from 8% in mid-August 2021 and 4% in late December 2020. Nearly a quarter (23%) were retailers across the wholesale and consumer-facing sectors and 25% in the manufacturing industry.
There are many reasons why business costs are rising. We delve a little deeper into the most significant and our head of credit, Tony Wood, gives some tips as to how businesses owners can overcome these challenges.
Energy
The spike in energy prices is pushing energy suppliers out of business meaning that everyone will see an increase in price, not just businesses. We should expect to see a 30% increase in energy prices as we head into 2022. This may or may not be temporary.
As a result, it is inevitable that some businesses will have to pass on this additional cost in order to survive, so they will begin to increase the price of their products or services.
Over to Tony… “As a business owner there are other ways to reduce your energy costs without the need to hike product prices up too soon. Start simple with just turning off lights, office equipment and machinery at the end of the working day and switch to energy efficient bulbs such as LED where possible.
“You can also look into the long-term advantage of investing in energy- efficient equipment and the possibility of using solar energy to power the business premises which could have long-term cost advantages.”
Inflation
The rising cost of living affects businesses as well as individuals. Many businesses are finding that core materials, delivery and fuel prices are affecting the bottom line. In turn this is forcing business owners to increase their price to customers to make up for the money they are losing.
“There is no doubt that the last thing small business owners want to do is dramatically increase their prices for consumers at the moment,” Tony continued.
“With this in mind, you may want to start considering how you approach your price increase over the coming months. Customers are more likely to accept more frequent, smaller price increases than a sudden jump into the deep end.
“Another way to prepare for inflation is to stock up on inventory where financially possible before supplier prices rise and use cash reserves as a buffer to ‘buy’ you time to adjust your own product pricing.”
Furlough & Staffing
The furlough scheme, which helped businesses keep employees on their books when coronavirus restrictions were in force, has finally ended after a period of scaling back.
“It is time to be realistic about your business’ staffing needs. We always encourage businesses to keep their staff on wherever possible, perhaps by adapting their role and responsibilities or getting them to work on a new project. However, we appreciate this may not always be sensible and redundancies may be inevitable.
“Due to the associated costs, we would urge businesses to be cautious before taking this course of action and properly consider whether over staffing is a short term or long-term issue. Other options such as reduced hours over the short term should also be considered. We encourage businesses to engage with a HR professional when considering their options.
“Please also remember that if you have coronavirus sick pay claims to make for the period up to 30th September 2021, ensure you make them sooner rather than later as you will not be able to make these claims after 31st December 2021.”
VAT
Some areas of small business, particularly in the hospitality sector, have benefited from a VAT cut to help them to recover from the pandemic. The original cut, from 20% to 5%, came into effect on 1st July 2020. Since then, the rate increased to 12.5% on 1st October 2021 and this will apply until 31st March 2022.
The rate applies to suppliers of restaurant services, hot takeaway food, holiday accommodation and admission to some attractions. This increase has not been welcomed by the hospitality sector. They were by far the hardest hit during the height of the pandemic and this rise in VAT could significantly impact the rate of survival of many businesses across the sector.
Tony concluded: “Overcoming the challenges of increased VAT isn’t easy and those affected are asked to ensure that prices on menus and tickets are updated with the new costs and consider whether prices charged to consumers have to rise. Focusing on trimming business costs now are essential before VAT rises to 20% on 1st April 2022.”
How can BCRS Business Loans support you?
If your business has been affected by the recent rise in costs, we may be able to help.
BCRS Business Loans is committed to supporting SME businesses across the West Midlands that do not tick all the boxes at traditional lenders. We offer loans from £10,000 – £150,000 to kickstart your growth and recovery following the pandemic.
Click here for more information.
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