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Anxieties about rising costs in 2022 are growing for small businesses, as new research finds that 71% of SMEs view inflation as their biggest cause for concern in the new year.
The survey of 500 UK small businesses conducted by fintech group iwoca, alongside online research panel Panelbase, reveals that surging demand for raw materials is putting added financial pressure on small business owners.
Inflation is currently on course to hit 6% over the coming months, despite a government target of 2%.
In light of the dual impact of Brexit and the pandemic disrupting global trade routes in the past year, iwoca’s findings also reveal a quarter of small business owners are concerned about how supply chain issues might affect them.
Rising costs cause for concern
Despite remaining fairly steady for the past 14 years, inflation has ballooned as the pandemic has disrupted almost every aspect of the global economy.
Consequently, small businesses have experienced a barrage of price rises, as energy and fuel costs spiral, and raw materials become harder to source and import.
In an attempt to tackle the issue, interest rates have been raised to 0.25%. The Bank of England isn’t ruling out further hikes in future monetary policy meetings.
One expense that’s seen a particularly high surge in demand is gas. Earlier this month, government data revealed that 11.7% of SMEs said their production, or their supplier’s production, has already been affected by increased gas prices.
As energy costs soar, iwoca’s results found that 46% of respondents – who are not protected by Ofgem’s domestic consumer price cap – view increased running costs as a main concern for their business in 2022.
See our guide to the Best Small Business Gas Suppliers for 2022
Harp Gill, Milton Keynes based owner of mobile catering business, The Rub, said the firm has been badly affected by the pandemic. “Whilst no new restrictions are imminent, we have been hit by short term worries surrounding inflation and rising business costs.
“Over the last few months, supply chain issues and rising costs have meant we have had to remove certain meats from our menus including beef and lamb. We hope that as people see the back of the pandemic and get out to celebrate their lives, we will return to normality.”
Growth plans stalled
As concerns mount over the future of the economy and its effect on their business, four-in-five small business owners say that they do not expect to hire new employees this year.
Only one-in-ten (9%) of SMEs are predicting they will hire over the next 12 months, despite record vacancies across the economy, according to the iwoca report.
How can small businesses minimise the impact of rising costs?
Whilst the rate of inflation stays high, it will continue to have an impact on small business costs.
Additional government support is now available to ease some of this burden for leisure and hospitality firms and their suppliers, including grants of up to £6,000.
But there are other, more self-directed ways that SME leaders can keep ahead of the storm, and stay fully up to date and knowledgeable about company finances.
This includes using accounting software, an automated service that will carry out important daily tasks and help you manage your time more cost-efficiently.
Another option is to speak to a financial expert or consultant, to help you identify areas of your business where you may be able to absorb the added costs. They can also help you to manage debt should you find yourself running into money trouble.
SMEs might not be optimistic about 2022 and the prospect of a rising rate of inflation. But using third-party experts, or the aid of helpful business tools, is the best way to take control of your finances, and minimise its effect.
Concerned about rising costs? Accounting software is a great way to help you with everything from inventory management to budgeting.
Read our guide to the best accounting software for small businesses to learn more.
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January 11, 2022 at 09:19AM by Helena Young, Khareem Sudlow
