The effects of the cost of living crisis are being felt by almost everyone but with some people responsible for both household and business costs and little to no government support available, it’s small businesses that are feeling the biggest strain.
From the COVID-19 pandemic to the cost of living crisis, small business owners have been hit particularly hard in the last few years in a disaster that is being dubbed the ‘cost of working crisis’ and with further price hikes announced, the future is bleak for small businesses.
In this article, we’ll outline the challenges facing small businesses amidst the cost of living crisis and what financial support is available.
Increasing energy bills
The latest energy price cap increase has sent shockwaves up and down the country but with businesses exempt from the £3,549 annual limit, it’s a worrying time for companies still grappling with the current energy price cap and the fallout of the COVID-19 pandemic.
This, coupled with the fact small businesses are known to operate on slim profit margins as it is, means most small businesses simply won’t have the cash reserves to cover increased costs and might have no choice but to shut up shop before the worst of the cost of living crisis hits.
PayPal’s Wellness and Empowerment Report 2022 also revealed that 78% of small businesses cite the rising cost of living as the biggest threat to the future of their business over the next year and 27% fear their business might fail as a direct result of rising costs.
It points to a bleak future for millions of small businesses with further government support desperately needed to not only help some small businesses get through the next few months but survive the cost of living crisis.
Lower consumer demand
The cost of living crisis is having a devastating impact on people’s personal finances and, as a result, consumers are no longer spending as much on non-essential items.
But it isn’t just unnecessary purchases that have experienced a drop in demand with 23% of people also being forced to cut back on essential items since the cost of living crisis took hold earlier this year.
According to a recent survey from GoCompare, for example, 17% of UK shoppers vowed to stop spending money on beauty treatments, 9% will no longer pay for pet grooming services, and 14% will give up hairdressing appointments.
This might help people slash their monthly expenditure but it will also leave small businesses struggling to cover increased wholesale costs at a time when consumer demand is more important than ever before.
Rising unemployment
With the price of goods and services soaring and living standards falling at record pace, wages are failing to keep up with rising inflation.
This, coupled with a nationwide staff shortage and an unemployment rate of 3.8%, is putting further strain on small businesses that are already stretched thin and struggling to fill roles.
For example, if people are struggling to find work, they will have less disposable income to spend and this will have a knock-on effect on small businesses.
The Federation of Small Businesses (FSB) also revealed last month that the majority of independent businesses expect “no or negative growth” in the next year, which spells disaster for small businesses looking to expand.
What support is available?
According to a survey by Newspage, 69% of small and micro businesses said the cost of living crisis is affecting their mental health and 14% said it’s having a “very negative effect” on their mental health.
Earlier this year, the Employment Allowance increased from £4,000 to £5,000 in a move that is expected to benefit over 50,000 households with small businesses able to claim up to £5,000 from their National Insurance contribution (NIC) bills which were recently increased by 1.25%.
But with financial support for small businesses noticeably absent from Rishi Sunak’s £15 billion cost of living package and no further financial support announced, this is a problem that will only get worse as the cost of living crisis continues.
This comes as a recent survey of 500 small business owners found that 86% are doing whatever they can to minimise overhead costs and 26% are working unpaid hours to keep their head above water.
