SMEs forced into crosswinds

With the UK in the grip of a cost of living crisis, we asked Gary David Smith, Co-founder and Director, Prism UK (www.prism.uk.com) for his view on how the cost of living crisis is fast becoming a cost of doing business crisis for SMEs.

“The UK is in the grip of a cost of living crisis on the back of a perfect storm.  A slow, painful financial recovery from COVID-19 and adjustment to Brexit are just two of the main trigger points for the economy. The ‘pinch’ is exacerbated by rising inflation and energy pricing hikes - but it is not just the individual citizen alone who is facing higher and higher costs.  SMEs in a variety of industries and niches are caught in crosswinds – as owners face having to make sweeping sacrifices purely to make business ends meet.”

“The cost of living crisis is forcing small businesses to focus on bare-bones running costs.  Not only that, but many business owners may be forced to hike their prices massively to combat unprecedented costs.  With inflation scaling ever higher, many SMEs are forced to increase their service and product rates purely to keep business running behind the scenes.  Skilled workers normally expecting competitive pay and subsequent rises remain on tenterhooks.  Therefore, their employers are passing said costs onto the consumer  – purely because there is very little choice otherwise.  On top of this, SMEs’ staff costs are exacerbated by increasing numbers of resignations and the fluidity of the labour market.  The competition to hire people at all has never been fiercer.”

“Supply chain pressures delivered by Brexit and COVID-19 are already piling upon the global supply chain.  This has only increased thanks to the ongoing conflict in Ukraine, with many supply links diverted or curtailed altogether.  These supply chain pressures are forcing SMEs to make tighter choices – which are often more expensive.  This is especially proving to be the case with raw materials.  This situation puts many businesses at a never-ending position of loss.  Coupled with inflation rising and the cost of living spiking, smaller firms are chasing their tails.”

“Many businesses are yet to see general expenses return to pre-pandemic levels. Costs such as office space, travel and hospitality needs are yet to return fully.  The lack of bounce back from the pandemic at present is further worsened by SMEs having to factor in additional, unforeseen costs.  Again, these are costs such as increasing raw material charges, operational planning rates and staffing pivots – business owners simply have no choice at this stage but to pivot.”

“To pivot, business owners are having to make impossible choices.  Many will need to consider whether they can actually deliver on service and product promises, let alone compete commercially.  SMEs may have to reduce choice available and increase costs.  For the average consumer, of course, this is highly undesirable.  It is a knock-on effect of an economic system that is taking on more and more burdens.”

Disposable income in the UK is likely to dissipate from household-to-household.  This has a further knock-on effect for SMEs, as average consumers have less money to spend on increasing service costs.  Energy and food prices, in particular, are causing major slowdown for SMEs cross-industries.  This slowdown is causing massive impacts in terms of confidence and business commitment.  It’s likely to drive down investment interest, too, and 2022 is highly likely to be a disappointing year for economic forecasting.  With the annual growth for the UK is set to be much lower than initially forecasted this year, prospects for both the country’s SMEs, and the economy at large, are likely to be bleak for some time.”

“For the time being, business owners are simply having to adapt, and pivot, to impossible circumstances.  It means that some SMEs are having to observe closer than ever for what their competition are doing re costs and demands.  However, there is simply not enough time to analyse and plan – SMEs need to balance both legacy and arising costs while deciding how to best appeal to their customer.”

“The questions will be: ‘does a business reduce its margins, or does it tighten the availability for choice?’  Unfortunately, for as long as this ‘perfect storm’ continues, the smartest of business owners will simply have to remain flexible and adaptable; or ‘will some SMEs have to stop trading altogether, or pivot indefinitely into a new business altogether?’  Whatever the outcome, smaller business owners will need to keep an open mind for many years to come.”