How is the cost of living crisis affecting business?
By Mr Bankruptcy
26th July 2023
The cost of living is continuing to make headline news. We often hear about how it impacting our households and individual pockets, but should it be a serious concern for businesses too?
The impact of high inflation
High inflation and comparatively low wage growth is making life difficult for many businesses. Inflation pushes up production costs, rents etc and businesses are paying more for everything: raw materials, equipment, energy, fuel, shipping costs etc. They are also under pressure from employees to increases wages to help alleviate the burden of high inflation on them too.
Businesses are often hit by a double whammy; as household budgets are squeezed, people have less money to spend on goods and services, and for businesses that trade globally, where inflation in the UK is higher than in other countries, it makes UK exports more expensive to make and less competitive internationally. Revenues start to decrease and when businesses are forced to raise prices to cover their higher costs, they do so in fear of alienating customers.
And as other businesses struggle, the number of late payments increases, cashflow becomes tighter to manage. As the financial situation changes, business owners need to reduce costs to help prevent debts.
How are businesses coping?
Business sentiment is being tracked closely as fears of the impact of ongoing high inflation remain prevalent.
In May, the Institute of Directors’ (IoD) Directors’ Economic Confidence Index, which is a measure of business leader optimism in the UK economy, had stabilised at -6, a significant increase from -64 in November 2022. However, the IoD also reported that the overall sentiment was broadly negative-to-neutral, with 39% of its members feeling pessimistic about prospects for the UK economy in the year ahead, as opposed to 33% feeling optimistic.
On the other hand, a recent ONS Business Insights and Conditions Survey for the two weeks ending 13 July 2023 found that 22.3% of respondents thought their business’s performance would increase over the next 12 months, as opposed to the 10.8% who believed it would decrease.
Neither of these reports paint an especially optimistic picture of the future, so what can business owners do to help manage the impact of the cost of living on their companies?
Taking control of your finances and your wellbeing
A downturn in business and long-term uncertainty is often a cause of anxiety for business owners, so it’s at these times that it’s important to take greater control of income and outgoings.
In our James Rosa Associates blog you can read about Six essential reports your business needs and how to create a budget that works for you to help you manage your business and personal financial wellbeing.
In addition to the financial side, it’s also important not to neglect your own mental and physical wellbeing at a time when employees, partners, friends and loved ones may be depending on you. Don’t be afraid to talk about your concerns with someone you trust.
James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. We pride ourselves on our supportive and non-judgemental approach. We offer a full range of advice and professional services to individuals and business owners/directors who face hard-to-manage debt or who are involved in civil or commercial disputes. Our services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
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Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.