9 tips for dealing with cost-of-living crisis

How can my business survive the cost-of-living crisis?

Saving money right now is incredibly hard as there is little you can do to reduce the costs of everything! However, by being proactive, there are some things you can do to help your business through it:

1. Review your prices

Putting your prices up to compensate for the higher costs is something you may be worried to do due to upsetting or losing customers, however, it is something every business seriously needs to consider.

You can do it tactically to help your business while reducing the impact it’ll have on your customer base. We have an article on increasing your prices which refers to a McKinsey study that found that a simple 1% increase in pricing can potentially deliver an 8% increase in net profits.

You can also think about which areas you could justify an increase in prices  – maybe premium products or services you offer.

2. Review your drawings 

Have you reviewed the funds you are drawing from the business? Do you know what tax you should be saving on these? Is the business making enough profits for you to sustain this level of drawings?

It’s important that you set a personal budget and review your personal costs as it may be possible to draw less from your company which will help ease your cash flow. Taking a methodical approach to your expenses and running through your bank statements for the last few months could easily highlight unused gym memberships, duplicate subscriptions and an expensive food shopping bill, all of which you do have control over.

3. Review your borrowing / repayments

If you have high levels of credit card debt or you aren’t in the best mortgage deal, you may be paying more interest than you should be, and this can make everything much more expensive for you in the long run and take longer to repay your debts.

Credit card debt can mean interest in excess of 30% making it almost impossible to repay easily. It’s important to manage income and debt well and have a plan to pay down expensive debt first.

4. Check and improve your credit score 

Over the last few years lending has been readily available. Now we head back to a more normal lending market you will need to rely on other methods of finance to support your trading which can include supplier credit facilities.

It’s important to check your business and personal credit scores regularly to ensure that nothing has been recorded on your files incorrectly and nothing negative has been filed. Your business and personal credit scores can have a huge impact on your ability to borrow money so it’s important that these are right.

There are companies such as Lightbulb Credit that can help with monitoring your credit score and tackling any issues that may arise on these. Take a look at our how to improve your credit rating, which includes a free credit score report from Lightbulb Credit.

5. Get regular management accounts 

Management accounts are not a new thing but so many businesses operate without looking at them in favour of their own excel sheets, why? Because no one has ever invested the time to change the standard profit and loss, balance sheet and cash flow reports into meaningful information with you

These reports though are just a snapshot in time and viewed individually have no context. They don’t show you patterns in sales that may need strategy, how you’re growing, which areas/, products or services are making you the best return, your increase in costs or compare how you’re measuring up to your targets.

To get the core of these figures, you need monthly or quarterly management accounts – an insightful, in-depth analysis of the data. They are an invaluable tool to allow you to go beyond the numbers and really understand where your business is now and how it’s going to get where you want it to be.

 Read our detailed article on why you need management accounts to find more about what management accounts are and why they’re an important tool during this crisis.

6. Review productivity of your team and consider automation 

 Since the pandemic, there has been a clear shift in productivity amongst employees. One of the most important things you can do to improve this is to clearly define everyone’s roles and all the key processes in your business. Documenting this reduces the risk of mistakes, improves consistency and facilities the growth of your business. It also allows you to delegate more easily when a staff member has a clear set of instructions to follow.

This exercise will also help you look at your processes as a whole and see where you can add automation. This may include integrating add-on apps into your processes, for example, Chaser to automate your invoicing.

7. Consider a one-off “cost-of-living” bonus instead of pay rise 

 On the other side of it, you may be able to keep your staff working their usual hours but they’re pushing for big pay rises due to inflation putting pressure on their household expenses. Instead of doing this, you could offer staff a one-off “cost of living” bonus to help them during this crisis. Inflation is likely to be a phase and will settle down – so you can still help your staff and ensure your business doesn’t feel any more added pressure.

8. Review your overheads and other costs 

When faced with economic difficulties or high operating costs, you need to audit your overheads and other operating costs to see where you can make cuts. This could involve swapping to cheaper service providers or suppliers, cancelling unused or unnecessary subscriptions, and using cheaper products and materials.

While it is a much bigger task, you could consider downsizing your business premises since hybrid and working from home is here to stay for many businesses.

Contact us regarding our Reducing Overheads service. This is a two-hour session which aims to review the overheads that you are paying and help you find cheaper alternatives.  We can also introduce you to our network of other professionals that may be able to help switch to other service providers.

9. Consider cutting back some employee’s hours 

Making redundancies or reducing employees’ hours is the last thing any business owner wants to do, but there are times when all business owners need to make tough business decisions. If it’s the only way to keep your business afloat, then it’s a consideration that needs to be taken seriously.

During the pandemic, we wrote an article on reducing your employees hours which goes into detail on the rules on how you can reduce your employees hours, including contract changes, what happens if they don’t agree to the changes in hours etc.

Bonus tip: Scenario planning

The reality is that every single decision in your business is a choice under a degree of uncertainty, even more so in times of crisis when there are so many external factors impacting your business. Realistically, everything we do in business is basing our choices on possible outcomes and best-case predictions about the future.

Decision making should be based on data, like monthly management accounts and KPIs, rather than just intuition and gut feelings. But of course, there is one drawback to this, the data tells us about the past and the present but how can we predict how our decisions are going to impact the future?

Thankfully, we have a free tool to help you do this: Our Free 5 Minute Scenario Planning Tool.

In simple terms, scenario planning provides a structured method for businesses to evaluate alternative views of what may happen in the future as an aid to strategic, operational and financial planning.

Our free 5-minute scenario planning tool will help you quickly input the numbers on certain factors and instantly see the impact this will have on your profit.