Economic uncertainty: how to manage

by Michael Blaken

We are once again navigating a period of significant economic uncertainty. Between creeping inflation, interest rates that show no signs of falling, and war in Iran driving up energy prices, business owners are under immense pressure.

Added to this, the recent increase in the National Minimum Wage, following on the heels of last year’s National Insurance rises, means employment costs are also on an upward trajectory.

When margins are being eroded from all sides, how can business owners best ride the storm? Here is our strategic advice on protecting your bottom line.

The pricing dilemma – avoid a kneejerk reaction

The most obvious way to maintain margins is to raise your prices. While many businesses are currently doing exactly that, we advise caution. Increasing prices as an automatic response carries hidden risks. Consider the following:

• Value versus commodity: If your service offers unique value or expertise, your customers may be willing to absorb a price rise. However, if you sell a ‘widget’ that can be easily sourced elsewhere, a price hike could lead to a sharp fall in sales.
• Demonstrating worth: If a price rise is necessary, focus on communicating the value you bring. Help your customers understand why they should continue to choose you over a cheaper alternative.

Efficiency – cut the fat and not the muscle

If a price increase isn’t the right fit for your market, you must look inward. Rising costs mean your business can no longer afford to carry inefficiencies.

• Audit your overheads: Review every line item. Where are you over-spending? Are you getting true value for money?
• Optimise your premises: With energy bills soaring, oversized offices or warehouses are a major liability. Now may be the time to downsize or consider subletting excess space.
• Supplier comparisons: Carry out a thorough price comparison across your supply chain. Small savings on raw materials or utilities – energy in particular, at this time – can collectively add up to a significant impact on your year-end figures.

Investing in people and processes

Maintaining margins isn’t just about cutting; it’s about better utilisation of what you already have.

• Staff deployment: Are your team members working as efficiently as possible? Rather than considering redundancies, look at this as an opportunity for retraining. Moving skilled people into higher-impact areas of the business can improve your overall output.
• Capital investment: It may seem counterintuitive to spend money during a squeeze, but investing in modern equipment can drastically lower running costs.
• Tax incentives: Remember that the Annual Investment Allowance (AIA) remains at £1 million. This allows you to deduct 100% of the cost of qualifying plant and machinery from your taxable profits, providing immediate tax relief and accelerating your cash flow.

The three-way approach

Ultimately, most employers have three main levers to pull:

1. Increase volume: Finding extra demand to sell more.
2. Adjust pricing: Raising rates to cover costs.
3. Refine operations: Making strategic cuts to improve efficiency.

In reality, the most successful businesses will use a mix of all three.

How we can help

To make these decisions effectively, you need a total handle on your numbers. We can help you model these scenarios, assess the impact of potential price changes, and identify where tax reliefs can bolster your cash flow.

Contact us today to discuss how we can help your business stay resilient in the face of rising costs.