Maintaining a business is certainly not easy, and success can depend greatly on current economic circumstances. The UK is usually a country with stable economic conditions. However, as with all other countries, it is subject to shocks.
The current economic crisis has been spurred on by many different factors nationally and internationally.
In the national sense, boosted demand from post-lockdown and issues in the energy sector has resulted in substantial inflationary pressure.
As tension between Ukraine and Russia has reached an all-time high, this has further put pressure on the energy market and pushed inflation to a level the UK hasn’t seen in 40 years.
The cost of living crisis has made daily life incredibly difficult for many consumers around the UK. Furthermore, businesses are finding it harder than ever to keep their doors open. You may likely be a business owner looking for clever ways to fight this crisis.
To try and gain the upper hand in this crisis, you’ll need to understand the reasons behind it fully. Read on to learn more about the current economic crisis and tips on how to combat it.
What is the Cost of Living Crisis?
Recently the UK inflation rate has hit a massive 9.4%. You will probably have heard this fact quite a lot over the past few weeks, as inflation has been all over the media.
It’s important to know what this data means. Inflation is defined as the general sustained increase in the price level of an economy. Therefore, general prices are 9.4% higher than one year ago. So, the higher the inflation rate, the more expensive goods become.
Due to sharp rises in general prices in the economy, it is becoming increasingly difficult for people to pay for living essentials. Real disposable income is the income people receive after benefits and taxes and is eroded by high inflation.
This drop in real disposable income is described as the ‘Cost of Living Crisis.’ The crisis is putting serious pressure on households and businesses as household budgets are tightening, which has had a knock-on effect on businesses.
What is the Damage to Businesses?
Businesses are under pressure from both sides of the supply and demand spectrum, with rises in costs and a fall in revenue.
The current economic climate means running a business is now incredibly expensive. The energy sector has been the hardest hit, with wholesale gas increasing by four times its 2021 price. This is just one example of increased running costs for businesses.
Moreover, households are practicing belt-tightening. Consumers must save money where possible, resulting in much more frugal spending and limited demand for most firms.
With all of these factors put together, profits for most firms are dwindling, and they are struggling to stay afloat.
How can Businesses combat this Crisis?
Protect your employees
Living standards have dropped for most employees around the UK. This means it’s likely that employees may be taking drastic measures and looking to move to jobs with slightly higher pay rates to survive.
This makes retaining employees incredibly important. The cost of employing new staff members or replacing staff will be much higher than the costs of improving retention rates.
Keep in mind that improving retention rates doesn’t mean just raising pay. You can improve staff benefits by improving flexibility and allowing more online work.
Update Your Strategy
Every successful business should have a business plan in place. However, many firms put a plan in place when they start operations and then seem to forget about it as they go along.
The key to having a successful plan is to adapt it according to current circumstances.
With costs flying up for businesses, you need to ensure that you’re setting realistic goals for your business. Furthermore, decreasing costs may be your only way of staying in business, so ensure you’re seeking effective ways to reduce costs.
Double Check your Books
Most firms will have cash reserves to help absorb any shocks or issues that come their way. Ensure you have an accurate idea of what you can do with these reserves and how long they will last.
Furthermore, map out your investments carefully. Buying expensive pieces of capital is not great if you struggle to pay your staff.
Don’t forget your consumers
You can attack this issue from two angles. Dropping costs can be pretty difficult if you’re working with fixed contracts from suppliers.
However, you can always attempt to increase demand. Stopping all advertising and marketing isn’t a great idea at this stage as boosted demand may give you enough revenue to keep afloat.
Businesses like Pearl Lemon Café are operating during this economic crisis and paying closer attention to the customer experience by making sure that prices do not hike too much and that they are able to have a positive experience at the café. This is an important balance for businesses to strike.
As this problem is affecting the whole of the UK, there is help on hand. Grants from the government and other sources can give you a cash boost to stay in operation.