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Small firms take steps to combat escalating costs

12 April 2022

New research has found that at least one in four small businesses are trying to protect their margins by reducing their energy usage and putting up prices.

A survey conducted by Iwoca has found that the rising cost of doing business is currently the biggest worry for owners of small firms, with nearly half (46%) saying it is their main concern, ahead of supply chain issues and staff and personal illness.

The poll results show that owners of limited companies are ten percentage points more likely to say that inflation has impacted their business than sole traders (56% compared to 46%). However, owners of limited companies are more confident that they can manage the rising cost of doing business, with 26% reporting that they can afford to absorb the rising energy costs compared to 15% of sole traders.

Many business owners have started taking steps to combat rising costs, including one in four (26%) of small business owners who say they have increased their prices due to rising inflation.

Not surprisingly, energy costs are a big issue for small firms. The findings show that 36% of small business owners saw their energy bills increase in 2021; 20% saw an increase of over 15%, and 10% reported a hike of 20%. Now all businesses face a record rise in energy bills from April and another potential spike in October.

As a result, 30% of business owners say that they will have to reduce their energy usage. However, nearly one in five (17%) said that doing so would negatively impact their business.

Seema Desai, coo at Iwoca, said: "Small business owners around the UK face a double hit on energy bills - at home and for their business. Whilst households are protected by the energy price cap, businesses are left exposed to skyrocketing prices. Many small businesses cannot absorb the costs of higher bills, meaning customers will be hit by increased prices and business closures."

Francesca Cingano, owner of Italian catering business Cateritaly, said: "As a small catering business, I can't just turn off the lights or put solar panels on my roof to reduce my energy usage. I have to use dishwashers, cookers and fridges every day to keep my company running - my energy bills have increased by as much as 20% already this year. Up against these rising bills my options are limited - I can either absorb the costs or close my business altogether. Nonetheless, my ambition is to continue to grow my business and hope that more income helps me manage rising costs."

Also this week, a new survey by the Association of Practicing Accountants (APA) has found that 87% of owner-managed businesses fear that inflationary pressures will impede their growth in 2022. Its key findings show that:

  • 64% of SMEs report that rising energy costs are impeding their ability to deliver;
  • 59% report that staff recruitment and retention is now presenting more of a challenge than 12 months ago with only 3% reporting this is now less of a challenge;
  • 62% are focused on surviving or sustaining their business against 33% who are looking to grow over the next six months.

On a positive note, 81% of business owners said that they are in better shape for the future than before the pandemic and 48% said it is likely or very likely they will make significant capital investment in their businesses in 2022/23.

Written by Rachel Miller.

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