The triple challenge to business costs 

In a little over two years, we have experienced three significant events. The first of these came in February 2020, when the UK left the European Union. This was closely followed by a two-year world pandemic. Then, on 24th February 2022, Russia invaded Ukraine. These events have brought many challenges to businesses, with the most significant being liquidity and increasing costs. Liquidity was assisted in the pandemic with a raft of measures and loans, but what are the rising costs and what can businesses do to overcome the challenge? 

The rise of interest rates 

Since the global financial crisis in 2008, the UK has enjoyed unprecedented low interest rates, which fell to just 0.1% in March 2020. However, these recent events have led to a sharp increase in consumer price inflation from a rate of 0.4% in February 2021 to a staggering 6.2% in February 2022. 

This has inevitably led to the increase of interest rates to 0.75% in March 2022. Experts predict they could reach between 1.5% and 2% by the end of the year. For any business with loans or credit cards, this means a rise in repayment costs. 

Raw materials and supply issues 

Brexit, the pandemic and the war in Eastern Europe have all affected supply issues and caused staff shortages. With difficulty accessing supplies, and without the necessary people to keep operations running smoothly, some businesses are struggling to produce and sell their products. 

The pandemic, in particular, also caused a rise in the cost of raw materials. When the world started opening up again in 2021, demand outstripped supply. Businesses have found that not only is it harder to get hold of raw materials, but they are also costing more. Some may have also seen a rise in importation costs post-Brexit, all of which puts pressure on businesses. 

Energy and transportation 

Energy prices have been on the rise since March 2020. However, the war in Ukraine has seen them skyrocket. For example, the provisional price for crude oil in March 2022 had increased by 64% since December 2021.This is affecting businesses in multiple ways: it is increasing the costs of manufacturing, energy bills, and transportation. More energy price rises are expected, too. 

Payroll and employer costs 

As the Government moves to a position of ‘living with Covid-19’, nearly all the measures put into place during the pandemic have been removed. One of these was the SSP rebate scheme which ended on 17th March 2022. However, infection rates are still high, and many employers might be feeling the pinch. 

This comes on top of the increase in National Insurance contributions for both employers and employees, which also impacts dividends and the tax on any director’s loans. It is also worth remembering that changes to off-payroll working penalties for the use of contractors are now in play. Getting this wrong could be costly and presents real challenges to businesses who need to assess the contractor’s employment status. 

Tenancies 

Another measure introduced during the pandemic was a commercial landlord eviction moratorium, which ended on 25th March 2022. Many landlords have been putting things in place, ready to take action against their defaulting tenants. For those businesses who could not keep up-to-date with their payments, this is a worrying time. There have been several reports of a large growth in creditors’ voluntary liquidations. 

VAT 

Finally, a mention for the hospitality sector, which has been hit from all sides and, despite venues reopening, is still struggling with staff shortages. The VAT relief offered by the Government during the pandemic ended on 31st March 2022. It is now back up to 20% and hospitality businesses may struggle with this additional cost against the background of so many other cost increases and resourcing struggles. 

What businesses can do 

It is no surprise that some businesses are struggling to meet these increased costs. But there are things you can do to ease the stress and pressure. For example, it might be time to consider re-financing. Interest rates may have gone up, but it’s possible to 

find better deals if trading has now improved. It’s also worth remembering that the recovery loan scheme is still available until 30th June 2022. You can find more information on this at British Business Bank. 

Some businesses might also be able to access loans from Innovate UK. There are four rounds of this competition with £25 million available in loans for highly innovative late-stage research and development (R&D) projects with strong commercial potential. The government also has a range of innovation grants for different industries. 

You may also find help at a local level. For example, Bedfordshire University has run numerous schemes to support local businesses, such as Innovation Bridges and the Productivity Escalator. Other universities run similar schemes and there are local enterprise partnerships working in most areas, who can offer help and support. 

Cost reviews (right price, right number of licences, scope and quantities), production, premises and staff efficiencies (doing things differently and smarter), supplier location (reduce lead times and importation costs) and consideration of trading terms (discounts for prompt payment if you have cash) should all be on the board agenda 

But above all, if you’re struggling to meet rising costs, then it’s crucial to seek professional financial and business advice. At EFM, we offer financial management and business support, and are helping other business owners navigate these increased costs. As an outsourced, ‘pay as you go’ service, you avoid the cost of additional overheads and have the professional advice you need, when you need it. 

To find out more about how we can support you, get in touch today to book your one-to-one consultation.