How to manage the rising cost of doing business and bottom line

The UK economy contracted in March according to the Office for National Statistics, amid rising costs and consumer cuts in spending. Services, accounting for 80% of UK gross domestic product, contracted by 0.2%, with retail sales down by 1.4% and spending on cars falling by more than 15%.

Meanwhile, nearly half of the 3,000 companies recently surveyed by the Bank of England expect the war in Ukraine, spiralling energy costs, supply chain disruption, absences due to sickness and trading difficulties to negatively impact business performance.

How to mitigate the rising cost of doing business 

The British Chambers of Commerce have called for an emergency budget addressing rising business costs with a three-point action plan to include a reduction of VAT on energy bills from 20% to 5% for at least one year, postponement of the National Insurance increase and reinstating free Covid tests for companies to ease the strain on persistent high absences. 

Furthermore, businesses across the UK are reporting widespread supply chain disruption, with ONS data showing that over a quarter experienced global supply chain disruption in the past month, a figure that increases to 52% among UK manufacturers. In addition, 78% of small businesses experienced their costs rising according to the FSB.

There are a number of steps every business can take to mitigate and manage the rising cost of doing business:

1. Review spending

   First, reducing the impact of rising costs starts with knowing exactly how much your business is spending and where these costs are allocated. Every outgoing should be evaluated based on its impact on business success. Hopefully, this exercise can help you to identify ways to mitigate rising costs. In addition, your business can identify which costs are essential to your business and monitor them closely. If you need help with your spending review, feel free to get in touch with a member of our team at info@acuaccounts.com.

    

2. Benchmark suppliers

   Benchmarking your key business suppliers helps to identify whether your business is getting the best deal. A regular review of all supplier spending can save your business money. Any type of supplier comparison has to be on a like-for-like basis.

    

3. Audit energy use

   The rising cost of energy makes a business energy audit vital. A business energy audit will assess everything affecting energy usage and efficiency. Energy audits look at everything from the structure of your building to the equipment in use, providing an in-depth understanding of the current energy usage. The audit will identify ways to reduce energy spending as well as the environmental impact of your business.

    

4. Pass cost increases on

   Mitigating the impact of rising business costs can require raising prices to account for these costs. Often considered a last resort, the prospect of passing the rising costs on to customers can be daunting and risky, even when necessary.

    

How to raise prices without losing customers

More than two-thirds of UK businesses expect to increase their prices, according to the latest quarterly survey by the British Chambers of Commerce. This number is the highest since the survey began in 1989.

If your business is considering a price increase, here are a few steps to do so without alienating loyal customers.

1. Research past increases
   

   Knowing how your customers have reacted to past price increases allows your business to set expectations and learn how customers have adjusted to price changes in the past.

    

2. Communicate the price change internally
   

   Everyone in the business should be informed of the pricing changes in advance to allow time to prepare the right messaging for customers.

    

3. Be transparent with your customers
   

   Prepare a communication plan to introduce the new pricing structure to your customers. Be transparent on the reasoning behind the higher price and prepare for any questions your customers might have. Always communicate your value proposition to your customer and tell them what they can expect from your business.

During the current business climate, B2B and B2C clients are likely to expect price changes from your business. You can consider raising your prices gradually or providing different pricing options for your products and services.
Raising prices in a transparent and open manner can be a long-term opportunity to foster customer loyalty.

Do you have questions about what comes next about the business? Any concerns on how to manage your taxes and business in 2022? Want to better understand how to make your tax digital?

Have a look at our services and feel free to get in touch with us. You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.