It seems as though there’s not a newspaper headline or radio phone-in or conversation at the pub at the moment that’s not focused on price increases, energy bill hikes, or worries about inflation. Inflation is the measure of how the average price for goods and services fluctuates over time. A 2% rate of inflation set by the Bank of England is considered necessary for a stable economy – but the reality of the situation can be a little more concerning for small businesses.
What’s the situation with inflation right now?
Inflation in the UK currently sits at 4.2%, which is a vast increase since June 2021, when it was 2.5%. This is the highest level it’s been for a decade, but still isn’t as high as elsewhere in the world; with the Eurozone sitting at 4.9% and the US at 6.2%. What’s more, it’s predicted that the British inflation rate will peak at 5% in April 2022.
Why is inflation rising so quickly?
The recession experienced because of the Covid-19 pandemic was unusual in that many of the workforce’s jobs were protected by the Government. This left those who did manage to retain their employment with considerably more disposable income post-lockdown than would normally occur in a recession. The demand for goods and services soared and combined with stock shortages, international transport issues, and the world’s businesses pivoting to cope with new rules and regulations as a result of Brexit, this saw inflation rise sharply.
How does this impact small businesses?
As the demand for items has gone up and supply struggled to sustain, many small businesses are having to increase their prices in order to not lose out on the profit margins that they would have previously benefitted from.
Materials and stock costs are rising, delivery times extend, shipping costs surge and employee fees also increase as wages are affected by inflation. All of these factors combined can naturally lead to a stretched cash flow, difficulties in finding affordable suppliers and contracts being missed or even cancelled. All of these can lead to troubles for small businesses, which may not be able to sustain the damage of long-term service failures and customer disappointment.
How can I protect my small business from rising inflation?
Inflation is not likely to let up in its skyrocket until at least mid-year and so although it may be difficult to entirely safeguard your small business against it, there are some precautionary measures you can take. If possible, try:
- Buy any required materials or stock in bulk before April 2022. This is when analysts expect inflation to reach its peak and so many items will increase in price on or around this date;
- Auditing your prices to ensure that if they must rise, you won’t reduce your customer base. If this is likely to be the case at a scale that would have a damaging impact on the business overall, consider reducing the price of a bestseller to act as a Cash Cow or sell a similar product at a higher profit margin;
- Undergo a streamlining exercise of business processes and expenditure to ensure that all expenses are necessary, effective and efficient;
- Considering a flexible affordable business loan to strengthen your cash flow position and/or cover any bulk or increased costs for the short term. If you are looking to protect your business then don’t hestitate to get in touch with Funding Bay. The government-backed Recovery Loan Scheme is still availble until June 2022.
