Cost of doing business crisis: The impact on SMEs
What is the real impact of the cost of doing business crisis on SMEs in 2023?
As we sit in the grip of a cost-of-living crisis, it’s often easy to forget that alongside this, a cost of doing business crisis is in full swing. Exasperated by factors impacting individuals, and subdued demand as real incomes fall, SMEs are facing a set of unique challenges as they battle to keep their doors open.
With many businesses expressing a lack of confidence in the current state of play, it’s not hard to see why few firms believe sales will increase over the next six months.
What is causing the cost of doing business crisis?
The crisis in Ukraine has caused global fuel shortages and escalating rising energy prices. This has compounded inflationary pressures caused by Covid-19, which saw a global breakdown of supply chains, halted manufacturing and caused fluctuating demand for goods and services.
Additionally, in a bid to combat inflation, global interest rates have risen. Though well intended, the consequence of these measures is a rising cost of borrowing for SMEs, meaning that many businesses are being hit with low demand and rising costs.
What can businesses do to overcome the crisis?
Despite widespread concerns, it’s not all doom and gloom. There are several practical steps businesses can take to keep more cash in the bank – and ensure doors stay open.
1. Supplier reviews – A thorough review of suppliers, both at home or overseas can help make businesses leaner and improve cashflow. Assessing service levels, product quality and delivery times throughout the supply chain reveals where smarter purchasing decisions can be made, allowing businesses to demand better value, boost profits and free-up extra resources.
2. Effective credit control – Reviewing payment processes can go a long way in making sure you get paid for work completed or underway. Agreeing payment terms up front, offering payment options, and keeping up-to-date records that can promptly identify issues are all ways businesses can limit the impact of late payments, and help avoid disputes.
3. Proactive communication – Keeping in regular contact with customers and suppliers from the outset can help lower the risk of late payments and avoid potential issues further down the line. Ensure payment terms are explicit from the start, run credit-checks before offering payment options, and keep a clear and open dialogue between teams to identify and escalate issues quickly.
4. Consider costs carefully – Spending money is an essential part of business but making more considered decisions can help businesses save a considerable amount of money. Cutting out unnecessary purchases, properly managing inventory, enforcing contract compliance, and simply shopping around for better deals can help to drastically cut costs and create a leaner operation.
5. Research funding options – Most SMEs require finance at some point, so knowing exactly what you need before you shop around essential. Factors to consider include knowing how much funding is required, current revenue and forecast targets, plus the viability of any shares and personal assets. Once you have a clear picture, there are a range of sources available from alternative funders like Bibby Financial Services.
