Cost-of-Living Crisis on SMEs
The UK’s economic landscape has been shifting for some years now. As successive events have posed new challenges and risks to small-to-medium enterprises (SMEs) across the UK. The coronavirus pandemic saw two years of reduced profits and instability. Followed by an extreme spike in the rate of inflation that threatens the solvency of smaller businesses. But what are the direct impacts of the cost-of-living crisis on small businesses?
The cost of fuel has been a cause of concern for some time, but recent international stability. Coupled with the relative devaluing of the pound sterling. Has led to fuel costs increasing considerably. This has affected consumers at the fuel pump. But has had a dramatic impact on the expenses of small businesses. With Many Looking to Alternative Forms of Financing to plug the spending gap created by rising costs.
The rise in fuel costs has had knock-on impacts on a wide variety of businesses, but those most keenly affected are in transportation, haulage and logistics. The direct impact of such costs requires a subsequent raising of rates – rates which clients already feeling the squeeze may not be able to meet.
The leading impact of the cost-of-living crisis has presented in the form of steeply rising energy costs. The rapid increase in the cost of wholesale gas at the end of 2021 spelled the beginning of the current economic crisis. As energy suppliers scrambled for low reserves of gas at high prices – partially a result of Russia’s invasion of Ukraine.
While much of the media’s focus has been on rising costs for the average domestic household. Small businesses face even more of an existential crisis. Business energy rates are not subject to an Ofgem price cap in the same manner as domestic tariffs, leading to some businesses projecting a manifold increase in their energy expenditure. Naturally, this rise is untenable for the vast majority of businesses, essentially constituting a multiplying effect on overheads across industries.
The above costs have naturally spelled disaster for the cash management of SMEs the country over. Cashflow is a vitally important metric for the overall health of a business’ standing, and a failure to maintain positive cashflow in times of economic difficulty can inspire concern in investors and stakeholders.
Growing business costs in terms of fuel and energy, which are in turn pushing up supplier and manufacture costs, are being paid out of pocket by SMEs – directly harming profits. And contributing to negative cashflow where investment and debt is also a factor.