If you’re a small business owner, you don’t need me to tell you that times have been hard for the past few years. It’s easy to assume things are improving now. After all, both inflation and interest rates have been falling this year.
Unfortunately, very little of this gain seems to have been passed on to SMEs. So why is this, and what can you do about it?
Fall in Inflation and Interest Rates
Inflation in the UK hit a long-time high in 2022, soaring to 11.1%. This was most immediately caused by the Ukraine War and its effect on international trade, but there were other contributory factors. The aftermath of Covid and the issues arising in the wake of Brexit both played a part in the record level.
This has gradually been easing, as both the UK and the world in general have adjusted to the new realities. The rate for the twelve months to September 2024 was down to 1.7%, well within the Government’s 2% target.
At the same time, the high interest rates imposed by the Bank of England to combat inflation have fallen slightly. In August, the Bank reduced its base rate from 5.5% to 5%, although it seems unlikely that any further cuts will be coming in the immediate future.
Why Isn’t This Helping SMEs?
In spite of improvements in the economy, recent research shows that around half of small businesses don’t consider they’ve benefited from the falls in inflation and interest rates. And around the same number (amounting to about 2.8 million SMEs) consider the cost of doing business to be too high.
The biggest driving force in this cost has been the soaring price of energy. Although rates have been coming down from their record heights, they’re still far above where they were a few years ago.
Crucially, while domestic customers have been able to get a little relief from the Ofgem price cap, this doesn’t apply to businesses. As a result, SMEs are being hit not only by higher bills, but also in many cases by higher prices from their suppliers, who have been forced to pass on their own rising costs.
What Is the Solution?
With costs soaring, it’s inevitable that many SMEs will be raising their prices. 45% expect to be doing so, with 20% of them predicting price-rises of above 10%.
This is understandable, of course, but ultimately it’s likely to lead to a vicious circle of ever-increasing business costs and consequent rising prices. An alternative way of reducing the effects of price increases on your business is to improve your cashflow by ensuring you’re paid promptly by all your customers.
Give me a call to discuss how I can help ensure those outstanding invoices are paid — so you’ve a better chance of surviving these difficult times.
