How SMEs can manage their business costs

Discover the best ways that SMEs can manage their business costs with the impact of inflation on the UK.

The impact of inflation on business

A perfect storm of political and economic forces is pushing up inflation to levels not seen in decades. According to the latest British Chamber of Commerce Quarterly Economic Survey results, over four in five businesses (82%) say inflation is a growing concern, while nearly two thirds (65%) expect to increase their prices in the next three months.

Structural events like inflation can hit SMEs the hardest, because they lack the depth of expertise and experience found in larger organisations. But with the right strategic approach, and by taking advantage of the advice and support on offer, SMEs can channel their natural agility and entrepreneurship to weather today’s inflationary storm. These same measures will help SMEs lay the foundations for profitable growth once the economic climate improves.

Keep track of business expenses and income

Even for small business leaders who wear many hats, the first step to recommend is to get on top of costs and cashflow, as these can quickly get out of control in an inflationary market.

SMEs should look closely at costs in their supply chain, their energy and utilities bills and other supplier costs. The British Chamber of Commerce's Director of Policy and Public Affairs, Alex Veitch, pointed me to the Ofgem website, which contains helpful energy efficiency advice and guidance. By keeping tight control of these areas, businesses will be best placed to negotiate discounts or other rewards for loyalty with longstanding suppliers.

Look for opportunities to source more affordably from local suppliers, too, especially if the time and cost of importing raw materials from the EU has increased.

Do your research. Get advice from experts. Benefit from cost savings

A discussion with Alex Veitch, Director of Policy and Public Affairs, and David Bharier, Head of Research at the British Chamber of Commerce, revealed that poor strategic planning and insufficient financial analysis can contribute to business pitfalls during times of rising prices.

They agreed that tax obligations and rules can be confusing, even downright baffling, to small businesses. Understanding how much money could be saved by taking advantage of tax credits and deductions often requires the advice and guidance of an accountant or specialist tax advisor. But getting this advice can be invaluable. Small businesses can subsequently take advantage of tax breaks or relief schemes that could contribute to some considerable cost savings for their business.

Downsizing your business

Next, look at how you can eliminate waste from your business. Post-pandemic, for example, many SMEs are asking if they can downsize their commercial buildings, now that so many employees are working from home some or all of the time.

Evolving your business model

SMEs should also look at how their business models can evolve in today’s post-pandemic, price-conscious market. Ask yourself if your customers still want the same level of face-to-face contact and examine what efficiencies you can gain from moving more of your business online. You may also find rising costs mean customers want more value-based offers, or affordable new ways to consume your services.

Investing in technology and automation can really help you tackle these issues. From gaining an accurate view of your supply chain costs to understanding building occupancy levels to delivering great digital customer experiences, our independent advisers can help guide you in the right direction.

It pays to be rigorous with your business planning

When it comes to business planning, you tend to see two distinct mindsets among SME leaders. One approach is more spontaneous and focused on agility and moving at pace. And another is more systematic, with growth and business plans built on solid foundations.

Some experiences show that the SMEs that have done best in the last couple of years have been in the second camp.

For example, SMEs that had a clear business continuity plan in place and had invested in remote collaboration and productivity tools like Microsoft 365 were much better placed to make a successful transition to home-based working at the start of the pandemic.

Fast forward to today, and those more digitally mature business are able to attract the best talent, because they are geared up for seamless remote working and so can recruit from anywhere.

Of course, every business is different, and remote working isn’t appropriate for everyone. But as a rule, businesses that invest in technology to deliver against their goals find themselves much better placed to flex in response to external forces like today’s acute inflationary and cost pressures.

Advice on investing in digital technology for your business

SMEs can be at a disadvantage when it comes to investing in technology, given they may lack the depth of specialist technical and product expertise found in larger organisations.

When every penny counts, now’s not the time to take risks with your IT budget. So make sure your investments are carefully focused. Taking some expert advice can help you establish the key questions to ask of potential IT suppliers. This will help narrow down and make your options more manageable, and make sure you choose technology that’s tailored specifically for your business.

It can be surprising how infrequently SMEs turn to external sources of support – the Vodafone SMEs Like Us report published in 2022 revealed that 42% of SMEs did not seek any external help in the past year. Of course, we often see the time-pressure small business leaders are under and that they often lack the time to look for advice.

Given this ‘guidance gap’, community, partnership and collaboration are becoming more and more important – and that larger companies should support smaller ones through these challenging times.

As a supplier, we’re ramping up our backing for SMEs throughout the IT investment lifecycle. An SME can have a free and impartial conversation with an adviser on V-Hub, and get free training on business.connected to make sure they’re using their IT tools in the most effective way.

The short-term outlook for SMEs may be challenging. But I believe these recommendations will help SMEs manage the rising costs of labour, energy, raw materials and more, and be ready for what’s next.