The Indirect Impact of the Cost of Living Crisis on SMEs

The current cost of living is impacting business owners in more ways than one. While many are struggling to keep up with the rising costs of daily operations, the indirect impacts are also weighing heavily; from declining customer demand to higher employee turnover, the ‘crisis’ (as the media loves to call it and a term that for the rest of this article I have tried to avoid. We could just say rising overheads, but it doesn’t catch the eye nearly as well!) is affecting businesses in a variety of ways. In this post, we’ll explore some of the most common impacts of these increased costs and what business owners can do to mitigate them.

How is the cost of living indirectly impacting businesses?

The current higher cost of living is leading, in some sectors, to a decrease in consumer spending, particularly among lower-income households. This has an indirect impact on businesses, as fewer customers are spending ‘discretionary’ money at their establishments. Businesses are also experiencing increased labour costs due to higher wages needed to attract and retain employees, and with a New Year comes further requests for pay rises on top of those that might have had to be paid last year. Additionally, rising housing and travel costs can lead to employee turnover issues, as workers look for jobs closer to home or indeed move home to more affordable areas.

Finally, an increase in inflation has caused businesses’ operating costs to rise across the board and this, along with the supply chain issues that continue to be seen, often leads to increase stock holdings or delayed sales all of which makes it harder to turn a profit. As a result of all these factors, businesses may have fewer customers/sales and higher costs, making it more difficult for them to stay in business and afloat.

Is the cost of living risking your business’s cash flow?

Rising overheads are becoming an increasingly urgent problem for businesses both large and small, as the price of sustenance continues to increase. This quickly rising financial burden can easily become unmanageable for business owners, who not only have to worry about keeping their own finances afloat but also supporting their employees and customers. Continuing to find ways to generate revenue in such difficult economic conditions has been a challenge for all industries, but with creative solutions and financial discipline, it can be accomplished.

A healthy cash flow is the backbone of any business, and when it’s threatened it is important for businesses to act swiftly and strategically. Businesses must remain mindful of the current financial landscape and make smart choices that will keep their finances healthy and reduce the risks posed by the current cost of living.

Managing payment issues to overcome the impact of the cost of living.

Businesses need to ensure that they are managing payment issues proactively. With the right strategies in place, they can minimise the financial impact of this challenging time. The best way for businesses to combat rising costs is to set up an efficient cost management system that focuses on reducing expenses wherever possible without compromising on quality products and services, such as arranging discounts for prompt payment and critically reviewing non-essential items. It can also be important for businesses to consider offering their own clients more flexible or extended payment options, if their cash flow allows for this, to prevent any barriers to sales. Instalment plans, so that customers can pay at their own pace, might also be a consideration.

Businesses may be approached to negotiate new payment plans with existing clients who may face difficulty in paying due to the current situation, although care should be taken here that the desire to support your client base and maintain the relationship does not turn into a bad debt for you further down the line. Through careful planning and implementation of cost management tools and financial flexibility, businesses can successfully manage the effects of higher costs in order to stay profitable.

Talk. Negotiate. Regularly review your business cash flow analysis.

Talk and negotiation can be an effective way of helping businesses maintain liquidity at any time and even more so now. By speaking with customers and negotiating payment terms, businesses can make sure they are getting paid on time without having to resort to harsher measures such as litigation. It is important for companies to also review their cash flow analysis reports regularly in order to identify any areas where additional negotiation may be needed in order to ensure payment is received promptly. They should also ensure that they always have an accurate ‘real time’ picture of what is happening inside their business.

Cash flow analysis is an integral part of ensuring that business decisions reflect current economic realities, so conducting a regular review is essential. Doing this allows business owners to gain insight into their cash position and plan for future expenditures. This practice ensures that funds are available when needed and allows for better forecasting and budgeting further into the future. Adjustments can then be made based on an up-to-date understanding of what is happening internally and externally within the business – creating a more accurate ‘real time’ picture overall.

Working with professional financial organisations to survive the cost-of-living increases.

As a business owner, it is essential to work closely with your accountant, bank, advisors and invoice finance provider (if applicable) to successfully navigate the unprecedented economic upheaval being seen at the moment. Your accountant should be able to advise you on how to best manage day-to-day cash flow, while your bank may be able to help with business loans when needed if longer-term capital is required.

Additionally, an invoice finance facility will offer immediate working capital relief during the crisis by providing advances on outstanding customer invoices. It is important to remember that these services are designed with business owners in mind, so they are best placed to provide your business with the financial support it needs.

How invoice finance can ease the burden on SMEs and help them weather this storm.

In times of economic uncertainty, invoice finance can give small and medium enterprise owners invaluable peace of mind. Invoice finance provides a financial safety net for SMEs, by allowing them to use their unpaid invoices as collateral for capital. This enables them to receive cash upfront on the value of their invoices, rather than waiting until they are paid in full, providing immediate liquidity and improving cash flow. Invoice finance can be a valuable tool in helping SMEs weather this storm and emerge stronger than before.

Contact Partnership Invoice Finance to help keep your business thriving.

Partnership Invoice Finance provides flexible invoice finance solutions and our expertise, service levels and industry knowledge help us stand apart. From factoring to confidential discounting, whatever you choose, our expert team will provide guidance and a tailored solution that allows businesses fast access to their cash to boost working capital, relocate resources more efficiently and give them the control they need to steer through tough times. With quick decisions, speedy funds transfers and round-the-clock customer service support from highly experienced professionals – why look anywhere else?

The cost-of-living pressures are a storm that no business owner should go through alone. While the effects are far-reaching, there are ways to alleviate the impact. Contact Partnership Invoice Finance for help with your business finance requirements.