The last few years have been extremely tough and turbulent for businesses around the world. Just when you thought that we were on the road to recovery surviving the COVID-19 pandemic, one of the most unprecedented events to occur on the planet in recent history, we have now entered a time of rising living costs and large spikes of inflation. As a business owner, it is always important to keep a close eye on how the economy is fairing and how it could affect your business, but that has now become of significant importance. Business leaders have already shown major resilience against the challenges of recent years to keep their businesses floating above the water however, the challenges set to keep on coming. So, as we enter this cost-of-living crisis, what challenges could be facing you and your business and what methods could be exploited to help your businesses cope?
Causes and Concerns
The fundamental cause for the rise in living costs is the spike in inflation. The word ’inflation’ will have been on the mind thousands of resident and business owners across the world. There is worry because the surge of inflation in various countries has been rising at a quicker rate than wages and benefit increases. According to the Office for National Statistics (ONS), in the UK the Consumer Price Index (CPI) climbed by 7% in the year to March 2022, which represents the highest increase in the cost of living in three decades. In the U.S., current inflation rates have risen higher than it’s been since the 1980s. A wide range of European countries have also experienced rising inflation rates, varying from 5% – 10%. In Turkey, annual inflation is at a 24-year high of nearly 80% and in Australia, inflation is at its highest rate in more than 20 years. As well as being problematic for residents, rising costs are also a major issue for business owners. As well as the obvious rise of key materials, products and stock, business owners will also need to keep in mind their employees. Employees may need to have an increase in pay to compensate for the rise in living costs. If not, owners may experience an exodus with people leaving to enter roles which offer more substantial wages.
In addition to the possible threat of losing employees, businesses also have the threat of losing their customers. As households begin to make cutbacks due to the financial squeeze, that may mean you could experience a drop in customer spending. As a result, this would lead to a reduction in profits and in turn have a strain in owner’s finance.
Businesses ranging from some of the largest in the world to local family run-businesses have all been impacted. For example, streaming giants, Netflix, experienced a substantial reduction in its stocks in the first quarter of the year, partly due to a sizable percentage of paying customers opting out of their subscription because of decreased spending money.
It is a turbulent time for many but what can owners do to help their businesses cope with the crisis and mitigate the impacts?
- Assess Costs: By evaluating current costs your business is spending, looking elsewhere for cheaper and equally as good alternatives would be a good method to follow as it will save yourself and your business a lot of money in the long term. Start with the largest spend areas as these are the easiest to trim and get savings. Areas could range from operational costs to materials applied in manufacturing. Additionally, any sales and marketing costs could also be trimmed in places for the short term. Also, explore items that could be increased slightly to help benefit pay bills in the long run. But due to the current crisis, expenses will rise quicker than previously therefore using this tactic could be a useful method to take on.
- Keep Employees Happy: At this time, employees make seek for increased payment so they can keep up with the rising costs of bills, food etc, however increasing wages may not be a feasible option for you and your company. Therefore, other options will need to be explored and reduce the risk of unsettling your staff. Considering introducing perks such as working-from-home days or a staff discount scheme could go a long way for your employees.
- Energy Use: Due to the current circumstances, evaluating the levels the energy your business is using may provide you with a bit of a fright. Attempt to switch to more cheaper packages and even consider changing to renewable packages. Meanwhile encouraging your employees to turn of lights in the office or turn the heating down slightly will also help.
- Help Customers: As a result of the rising prices, consumers are cutting back on spending. Some of the largest companies in the world including BT, Sky and Virgin have pledged support to their customers so that they keep them happy. It is worth your business following the same strategy. Introducing reward schemes, cashback schemes and discounts will help keep your customers happy and will ensure they maintain their business with you.
- Outside Help: Various countries have Research & Development grants that can be claimed by businesses to help them with their commercial development.
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It is looking like an uncertain future for many across the world under this cost-of-living crisis. Economies are in a fragile state and businesses have been significantly impacted. There is certainly reason to be concerned, but business leaders are one of a very few people that have the authority to make some sort of a positive difference and ensure that your business does not suffer from the crisis as much as it needs to.