Inflation is a stalking beast that can threaten the survival of small businesses.
Rising prices eat into profit margins and put the long-term sustainability of SMEs at risk—making it imperative to tame this predator.
And well-managed companies that do so can even thrive like never before.
But SMEs will need to take concrete steps to grapple costs under control, and there’s no better time to do so because we are experiencing historically high inflation with little respite.
Food and non-alcoholic beverage prices rose by 16.9% in the 12 months to December 2022, and most forecasts predict inflation overall to average above 5% this year. In response, the Bank of England has pushed up interest rates, damping investment and the ability of businesses to grow.
The causes of inflation are complex, from the impact of the Covid-19 lockdowns—the end of which caused supply-chain bottlenecks that raised prices—to an energy crisis exacerbated by Russia’s invasion of Ukraine.
Brexit has worsened price pressures, as did the turbulent aftermath of Kwasi Kwarteng’s mini-Budget in September.
But whatever is fuelling the increase, its impact is undeniable—from the difficulties inflation creates for business planning to the escalation of costs for materials, shipping, energy and wages.
Small businesses everywhere have been feeling the pinch—so what do they do? Our report Tame the Beast provides valuable inflation-busting tips.
The first step is to take action—don’t wait for matters to “get back to normal”. Avoid firefighting and devise a targeted response based on hard data.
There are four potential approaches: passing higher costs onto customers by raising your prices; absorbing higher costs, which strains margins; increasing productivity with the same resources; and even diversifying in an inflationary environment to “seize the day”.
Start by reviewing profit margins to monitor the impact of rising prices, and auditing costs to find ways of saving money.
Little things make a big difference. Think about bulk buying, for example, and conduct an energy audit to identify potential cost cutting.
Audit your prices too—and don’t shrink from raising these when everyone else does: the right prices are essential to ensure your company’s survival and growth.
Rethink your product portfolio to provide the best value in a tough market, and look again at your business model and forecasts.
Make sure invoicing is squeaky clean and efficient—slow payment can have dramatic consequences for cash flow and payrolls.
It might also be time to seek new funding to tide your company over, so investigate unsecured lending or even government support.
Communicate clearly with customers, stakeholders and your staff, and talk to HMRC if you foresee problems meeting payments for payroll taxes and VAT.
Sniff out wasteful practices—company subscriptions and credit cards are serial offenders—and think carefully about how to address pressure for pay rises.
You need to be able to compete on salaries without creating a rod for your own back, and if you can’t raise wages, find creative ways to keep staff on board.
All these steps will help you wrestle inflation to the ground—but ultimately the most powerful weapon you have for taming the beast will be good leadership.Tame the Beast by Gavin O’Toole is published by Onyx Media and Communications Ltd is available exclusively on Amazon and is available for Kindle (£4.00) and in print form (£8.50). It is the first in a series of books that Onyx will be publishing to help SMEs.