Small business: double hit from rising prices
- 18th May 2022
Rising prices are hurting just about everyone, however small business owners are facing a double hit: the impact on their own spending power, but also less revenue coming in from cash-strapped customers.
The first signs of the effect of high inflation, which for March was measured at 6.2% rising to 9% in April are being felt far and wide. The volume of retail sales fell 1.4% in March, with spending on food dropping by 1.1%.
Managing your spending
The well-publicised drop in streaming subscriptions is just one example of how household budgets are being adjusted to cope with the cost-of-living crisis. Suggestions from government ministers to change shopping habits to own brand items may not have been well received, but there are other ways in which to make much larger short-term savings:
- At a personal level, cancelling or suspending gym memberships and other exercise-related subscriptions could earn you valuable savings.
- If you have time on your side, regular personal pension contributions could be frozen or reduced until your finances are back to more manageable levels. Whilst it is also possible to opt out of workplace pension contributions, this is generally not advisable because the free employer contributions will be lost.
- If you are facing serious difficulty, it might be possible to temporarily stop or reduce your monthly mortgage repayments. The decision will depend on the lender and your mortgage contract but is not a decision to be taken lightly and should be discussed with professionals.
Some small business owners may have actually seen improved sales, with some households increasing spending on DIY and furniture. Most retailers however, will need to ensure their prices remain competitive to try and retain customers who are trimming household spending and cutting back on products they see as unnecessary.
For small businesses providing services on credit, and managing cashflow is essential, especially as clients might be tempted to delay payments for weeks or even months. The human touch is always important, and any potential non-payers need to be dealt with swiftly and decisively.
And of course, the business’s own costs need to be kept under review, especially fuel costs in the coming months. Budgeting for increased prices needs to be factored in to your business planning and forecasting.
If you’re walking this tightrope, the MoneySavingExpert website has a useful cost of living survival guide across a range of issues which can be found here.
This content is for general information only and is not intended to be advice to any specific person. As with all tax planning, you are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. This publication represents our understanding of law and HMRC practice as at © Copyright 3 May 2022. All rights reserved.
Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.