It is fair to say that these are trying times for British business. Fewer customers, combined with increased outgoings, mean a stifling climate for almost everyone. And that’s before you contend with the rising cost of energy in the coming months.
According to Peter Mols, an Oxfordshire-based business coach, businesses could face “significant headwinds” over the next six months. What’s more, with customers tightening their belts, he warns that we could see the death of tens of thousands of businesses across the country over the next year.
Cash flow is key to maintaining a successful business; it is the precious liquidity that helps pay for stock in advance as well as for unforeseen expenses, and much more. But this is threatened by the cost of living crisis. With competing problems on the horizon, how can small businesses weather the storm?
We’ve spoken to small business owners about the impact it’s having on them.
Businesses face a spending squeeze
As households feel the pinch, people are cutting back on spending to help ensure they can afford the everyday essentials, such as food and energy, which are going up in price.
This is having a knock-on effect on businesses who, in turn, are having to tighten their belts. Ted Sandbach, owner of the Oxford Wine Company in Oxford, has seen ‘signs of difficulty’ in his wholesale operations. No longer able to afford to open every day due to rising staff and energy costs, his wholesale clients are ordering less, resulting in less income for his company.
Sandbach talks about the difficulty of cash flow forecasting and the need to correctly judge price rises in order to survive the current climate.
“Cash flow often kills businesses,” he concludes.
Energy bills continue to threaten businesses
What’s more, businesses are facing a troublesome energy market. NerdWallet research in October 2022 found that almost half (45%) of UK businesses feared closure because of rising energy costs.
More money spent on energy means less money to spend on other business essentials, such as stock, staff and rent or mortgage payments.
And even with the recently-introduced Energy Bill Relief Scheme, some industries may be hit harder by the current energy crisis than others. In particular, businesses with high energy usage, such as bakeries and cafés, may find it more difficult to keep up with rising energy bills.
Hani Sefein, owner of Brighton-based company Chameleon Aromas, explains how higher energy prices threaten his business. Making candles means melting large quantities of wax, which is energy-intensive. And that’s without factoring in the petrol required to travel to and from events such as trade shows.
“I have to have lots of cash flow, because you pay before you start to sell,” Sefein explains. As prices increase, so does the amount of money you need to put into a business before you can start earning, so acquiring enough capital to grow the business becomes more difficult.
Sefein dreams of growing his company, but that ambition may be hampered by the cost of energy and fuel.
Buying stock can be a struggle
Other businesses need capital in order to buy products to sell but it can be expensive to buy enough stock to meet demand. This can be a hard balance to strike for businesses that may not have much working capital, especially when prices are rising.
“It can be really tricky when you’re trying to buy enough stock to fulfil the demand but you don’t have enough cash in the bank to do it,” says Lucy Jeffrey, founder of online sock shop Bare Kind. “I feel like we learn more about it every year,” she adds.
Sandbach, of the Oxford Wine Company, faces similar issues when it comes to ordering stock. A rise in shipping prices after Brexit means that he must order larger quantities of wine in one go, to justify the increased delivery costs.
But ordering more stock each time means that his initial outlay is higher and that recouping the money takes longer because there is more to sell.
How can your business survive the cost of living crisis?
Business owners seem to face a perfect storm of skyrocketing bills, a drop in customer spending and restricted cash flow. The overarching question is: how can British businesses ride it out?
For Sefein of Chameleon Aromas, the short-term answer is simply to find other ways to fund his business and keep it afloat. The candlemaker works a full-time job as a software developer alongside a part-time restaurant job to raise funds to help ensure his business has the money to expand.
For other businesses, targeting new audiences could help. Jeffrey, from Bare Kind, attributes her company’s success this year to a push in diverse advertising, aimed at customers who are looking for gift ideas. “Because we are a gifting product people are willing to spend the money,” she says.
The gifting company Palette has had similar success with targeting spending trends, according to co-founders Hannah Carlisle and Emma Kong. “In times of depression [such as] a cost of living crisis, people treat people more,” suggests Kong, who adds that one trick might lie in knowing your audience – and gauging how and when they will spend.
As small businesses try to make it through the challenging months ahead, the key to survival will likely be different for each business owner. However, effective cash flow management is crucial for businesses to contend with rising prices and bills.
» MORE: Cost of living scams
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