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Posted: Wed 6th Jul 2022
After the severe impact of the COVID-19 pandemic, small businesses across the UK are now battling to deal with rising costs across their operations.
Record high inflation, skyrocketing energy bills, increasing fuel prices, and reduced consumer spending are among the many challenges founders are facing as the UK experiences a cost of living crisis.
Despite all this, the government is reportedly about to announce a campaign to encourage companies to cut their prices to help consumers. It was suggested by former Just Eat chief executive David Buttress, who the prime minister appointed as the 'cost of living tsar'.
Firms won't receive any extra financial help, but they will be given 'kudos' by being able to display a logo showing they support the campaign.
Many business groups reacted angrily to the plans, saying the move isn't realistic as small businesses themselves have so many of their own high costs to cope with.
So how are business owners dealing with the crisis and what advice would they offer to fellow founders?
We asked a selection of entrepreneurs, including many from the Enterprise Nation membership community, to share their experiences and tips.
Read to the end to access Enterprise Nation resources to help you deal with managing your cash flow and increasing costs.
Lynsey Bleakley, founder, Bumble & Goose Bespoke Bakehouse:
As a small luxury bakery using fine ingredients, we've been hit by rising costs. An example is one of the butters that we use has increased from 80p to £2.30 a unit!
Unfortunately we've had to pass some of the cost on, with slight price rises of around £1 on our gift boxes of personalised biscuits and luxury brownie gift boxes. We'll also cut back on advertising to reduce costs. But it's a fine line as consumer spending is down with the huge rises in cost of living.
We're in the virtual hug/luxury gifting market, and as consumers have less money to spend, we've added a range of products at a lower price point, while still maintaining our quality.
Customers can still send hand-baked treats to friends, family and colleagues as times get tighter. As a small business, it's essential to adapt and pivot as the market changes.
Rob Williams, director, Hawthorn (clothing manufacturer):
We learnt a valuable lesson during Brexit and we now pre-buy yarn so that we always have at least six months' worth in stock. This means we have time to adapt to any rising costs or other external factors.
Since the US dollar has fallen recently, our material costs have gone up, as we buy it from overseas farms. As we have stock, we have time to come up with a plan to negate the effects of these cost increases.
Having a financial buffer to deal with problems is one thing we highly recommend to other businesses. The safety net that a little bit of time to deal with an issue can afford you is invaluable.
Martina Schwarz, founder, Blackmarket (refillable liquid handwash):
Being a small business, our economies of scale weren't great from the start, so that's potentially shielded us from higher costs per unit for materials.
I'm constantly in contact with our suppliers asking them about rising costs, especially for our glass bottles. Making glass products is very energy-intensive, so this is an area of concern.
We talk to our customers to see what really matters to them. For example, we've switched from branded tissue paper to a plain one made from newspaper waste. This reduces cost in a place that doesn't affect the customer or the perception of the brand, and at the same time, it's more sustainable.
In some cases, we've had to change suppliers due to increased costs, so it's worth doing some research.
We haven't increased our prices for the handwash, but for new product launches, we'll probably have to consider increasing costs.
Vee Roberts, founder, Insight2marketing:
Some things I'm doing to cut costs:
Having fewer meetings to travel reduces fuel costs
Using less paper
Reusing leftover food at home for dinner or lunch
Meeting more than one person on the same day
Turning off plugs when not in use
Using hand sanitiser more than water and hand soap
Using online calls for meetings rather than phone calls
Della Hudson FCA, founder, Minerva Accountants:
I've been enjoying a period of low inflation but now things are getting back to normal I've taken a few actions to make sure that my business is in good financial shape.
We already review our prices each year and increase them by forecast inflation. I've gone through every line of our overheads and every supplier account to ensure that we're not paying for subscriptions or services that we no longer need.
In some cases I've downgraded to a cheaper supplier but I would never put existing suppliers under pressure to reduce their prices. We've also advised our clients to do the same to keep them in business.
Karen Riddick, founder, Second Nature Online:
Rising costs are an even bigger threat to our business than COVID and Brexit! Our overheads have increased by 50% and we're facing some serious decisions in order to stay profitable.
We remain positive in our search for solutions though. It's a matter of trying to reduce overheads and increase sales – easier said than done when our suppliers and customers are facing rising costs themselves!
Importing has become incredibly, and almost prohibitively, expensive so we're looking for more locally based production and source material. We're trying to downsize into one premises instead of two and we're expanding into new markets in order to find new customers.
We have looked through all of our subscriptions and professional services to see if we can live without them and we're looking to diversify some of the products and services we offer.
Another top tip is to consider getting a job! As business owners we generally don't have time to work for other people but if it means you can cover some basic costs during these tough times then it's a great option.
There are so many businesses needing staff right now that it's actually a good time to look for an extra source of income. Don't rule it out – you could be helping your own business and someone else's too. A win-win situation!
It's been hard-going and fairly depressing to see our bottom line shrinking but I'm conscious that it remains a relatively level playing field because so many businesses are facing the same pressures.
Amanda Walls, founder, Cedarwood Digital:
One of our biggest areas of expenditure, aside from payroll, is our office space and we're currently re-evaluating our position. We've seen many businesses sharing office space. This seems to work well.
We will still get the office space we need, while ensuring that space doesn't go to waste if staff want the opportunity to work from home.
We already have a 'quarterly check-up' in place, which means we review any ongoing subscriptions and external costs with the team internally to evaluate whether we still need them or not. This means that when costs do go up, we're well-prepared and are only paying for subscriptions we really need.
Another way we're keeping costs down is by planning in advance for work travel. By booking early, we get cheaper transport and accommodation. We've been guilty in the past of leaving this to the last minute when prices are high. In somewhere like London, it can be the difference of around £200 per night.
Deepak Shukla, founder, Pearl Lemon Café:
Costs have exploded. Our electricity rates and rents are high. Our cost of product has increased. Deliveroo takes 35% commission. It's crazy right now to even try and pay our staff, let alone actually make a living.
With this in mind there are several things we're doing to try and survive, let alone thrive. We're really focusing on the in-store customer service experience, and on Google reviews.
We've flyered and emailed local businesses, and showcased our products in the local gym, but and still it's tough right now. We have enough money to survive for six months, then let's see.
Andrew Armitage, managing director, A Digital:
My advice on how small businesses can reduce costs:
Build an audience through a mailing list or community group: If you suddenly lose a client or run out of opportunities, having a bought-in audience to connect with can hold unknown opportunities when presented in the right way.
Hold firm on crazy salary hikes: We're all facing higher costs, and simply pandering to those who shout the loudest for big salary increases isn't sustainable longer term. Yes, there's perhaps some levelling up to do, but don't try to match what bigger and more established firms can offer – it costs you more and still doesn't guarantee people will stay. Look at the other benefits people get from working with you and start to make your business look like an attractive place to work for when growth comes.
However, look at what you can do to support retention: Recruitment is challenging, time-consuming and expensive. Talk to your team and try to understand what are the things beyond money that they value. These could be lower cost to implement than salary increases but help to keep people in their role. Moving jobs when we're facing a recession carries a risk too.
It's inevitable that you're going to have to raise your prices at some point, for some or all of your services. Communicate this with your audience but also look to see where you can add extra value to try and offset the increase. Could you bundle products, offer a free audit or review to help identify new opportunities for revenue or further cost savings for your customers? Innovate with your products – it helps you stand out, keep conversations going and get feedback to help you further refine your products.
Look across all your promotion/awareness channels. Consider starting a podcast, or using social media more proactively. Look for speaking opportunities as live events return and try to build your personal brand/credibility.
James Thurlow-Craig, managing director, Create Designs:
We reviewed direct debits and subscriptions by checking the last six months of billing emails. This revealed services we're no longer using. We've found that after telling suppliers we're considering alternatives, they've offered a more competitive price to retain our business. We've also been able to reduce costs by switching payment methods to a cashback credit card.
The sharp increases in costs has encouraged us to be more creative in the ways we handle internal processes. Our marketing efforts and recent rebranding has increased our projected revenue for the year quite considerably, and instead of simply recruiting more members of the team and adding further expense, we have streamlined internal processes.
With reduced budgets, potential clients are looking for even more value for money. This has required us to change our approach and focus more on ROI.
Ryan Burnham, co-founder, The Berry (post production company):
Investing in your business feels like a gamble at the best of times, but with 3D animations and post production-heavy workflows, top-tier technology and equipment is vital to our business. It feels uncontrollably expensive when everyday costs rise so rapidly, so we need to look for smarter, simpler ways to slice through the financial chaos. Our solution: buy second-hand.
If you'd asked me about this two years ago, I'd have laughed: 'If you're going to buy something once, buy it properly'. Well, we recently purchased second-hand cinema standard kit that was formerly 'display equipment' or had a few, very minor external scratches that meant prices were 20% to 30% cheaper. By going second-hand, we've managed to grab top deals on high-spec equipment, while saving upwards of £15,000 throughout the business.
Hannah Martin, founder, Talented Ladies Club:
As running costs have gone up, we've reviewed our regular outgoings and identified which we needed and which we could operate without. If there were services we needed, we researched whether there were more cost-effective alternatives.
If you're on top of your cash flow and operate with a healthy profit margin, rising costs won't be a significant worry. I recommend keeping a monthly profit and loss sheet open on your browser and updated so you have a full picture of your finances. It's also important to review your offering. Are your prices correct? Your profit margin healthy? And are you focusing on selling your most profitable product or service?
Nick Swan, founder, SEOTesting.com:
We're a remote-first business. I'm based in Bude, our technical co-founder is based in Keynsham and our content writer is based in the Azores. This allows us to save great amounts by simply not having an office. Rent only seems to be going up in cost, so I'd encourage others to adopt the same structure for their businesses, where possible. Not to mention, remote working is good for team members as well with the fuel prices being so high.
Additionally, you might be able to save money on server hosting due to an error you might not even realise you're making. It can be easy to lose track of which servers are hosting your websites, leading to you paying for multiple servers. By staying on top of your server hosting, you're also staying on top of your costs."
Jonathon Grubin, founder, SoPost:
We're trying to manage cost increases as best we can, without compromising on our culture or the quality of our product. Our London team recently moved office and it was really important that we didn't downgrade in the process. To help balance out the increases in rent we've seen over the past year, we negotiated a longer term – 18 months, rather than 12 – which better protects us against further increases.
If you're smart about how you work with suppliers, you can win together: they get an income guarantee while you lock in a lower rate. It's something we've tried to do across the business, in some cases consolidating spend with one partner to gain better pricing from scale.
It's also about understanding what costs you shouldn't touch. I see things that help the team, such as entertainment and wellbeing budgets, as an investment more than anything else.
