There's been a lot of discussion recently about the cost-of-living crisis and its impact on small businesses. It can be difficult to make ends meet when you're running a small business, and it seems like things are only getting tougher.

That's why we wanted to take a moment to talk about how the current climate is affecting small businesses.

As a small business ourselves, we understand the challenges that our fellow small businesses are facing. We're all feeling the squeeze, and it's only getting harder. That's why we're doubling down on our receivables.

Subscription businesses, in particular, have to deal with a lot of receivables. Direct debits fail, and payments often need to be chased. It's a lot of work, and it can be tough to keep on top of it all.

But we're here to help. We know how important it is to keep your business running, and we'll do everything we can to make sure you get paid.

What do we mean by a cost of living crisis?

The cost of living crisis is the increase in the cost of everyday items and services, while wages remain static. This means that people have less money to spend on non-essential items, which can impact small businesses quite severely.

Currently, essential goods in the United Kingdom are increasing in cost faster than household income, resulting in a fall in real income for many people. This is having a knock-on effect on small businesses, as customers have less money to spend.

This has been caused by a combination of factors, including the Brexit referendum, which has led to an increase in inflation, and the financial crisis of 2008, which resulted in wage stagnation that is still ongoing, the pandemic and the conflict in Ukraine.

Inflation in the UK is currently at its highest level since 2013, and is predicted to continue rising. This means that the cost of living crisis is only going to get worse, and small businesses are likely to suffer even more.

How is this impacting small businesses?

As the cost of living rises, people have less money to spend on non-essential items, and this is hitting small businesses hard. Many small businesses rely on customers spending money on discretionary items such as nights out, weekends away and new clothes.

With less money to spend, people are cutting back on these luxuries and instead opting for cheaper alternatives or doing without altogether. Unable to compete with economies of scale, many small businesses are struggling to survive.

In fact, nearly a third believe they could possibly be out of business within the year.  

The cost of living crisis is also making it harder for small businesses to attract and retain staff. With wages failing to keep pace with the rising cost of living, many people are finding it difficult to make ends meet. This is leading to an increase in staff turnover as employees leave in search of better-paid work.

It’s not just the direct costs that are hitting small businesses hard, but the indirect ones too. The current political climate is creating uncertainty, which is making it difficult for businesses to plan for the future. And with consumers feeling the pinch, they are spending less, which is leading to a fall in demand for goods and services.

All of this is having a knock-on effect on small businesses, which are struggling to cope with the rising costs and falling demand. Many are being forced to cut back on staff, reduce their opening hours, or even close down altogether.

Fuel and energy price hikes are one of the main direct costs that are hitting small businesses hard The typical UK household is expected to spend the equivalent of £4,266 on energy each year from January, and small business owners are seeing their costs rise by even more.

Combined with the rising cost of raw materials, supply chain disruptions, and the impact of Brexit, small businesses are facing an uphill battle to stay afloat.

What is the government doing to help? 

The government has announced a number of measures to try and help small businesses, including an increase in Employment Allowance, a reduction in National Insurance Contributions (NICs) bills, and a cut in fuel duty.

However, these rather anemic measures are unlikely to be enough to offset the rising costs that small businesses are facing.

What can small businesses do to survive?

There are a number of things that small businesses can do to try and weather the current cost-of-living crisis:

Adopting a subscription-based payment model

One way that small businesses can try to offset the rising costs of doing business is by adopting a subscription-based payment model. This type of model allows businesses to spread their costs over time, making it easier for them to manage their cash flow and keep their business afloat.

There are obviously certain challenges that come with this type of model, but if it’s executed correctly, it can be a lifeline for small businesses struggling to keep up with the rising cost of living.

Offering discounts and promotions

Another way that small businesses can try to attract customers and boost sales is by offering discounts and promotions. This can be a great way to entice people who may be on the fence about using your product or service, and it can also help you generate some much-needed revenue during tough times.

Just be sure not to go overboard with your discounts and promotions, as this can erode your profits and put your business in a precarious position.

You'll also need to make sure your promotions are targeted at the right people, or you could end up wasting a lot of time and money.

Scaling back growth plans 

Small businesses may need to scale back their growth plans in order to stay afloat. This can be a difficult decision to make, but it may be necessary in order to keep your business running during these tough times.

It's important to remember that scaling back doesn't mean giving up on your dreams altogether. You can still strive to grow your business, but you may need to do so at a slower pace.

Making cuts 

Another difficult decision small businesses may need to make is cutting costs. This could involve reducing staff hours, cutting back on advertising, or making other changes to reduce expenses.

Making cuts can be difficult, but it may be necessary in order to keep your business afloat during the current cost-of-living crisis.

Move to a remote working model 

With the cost of energy rising rapidly, many small businesses are finding it difficult to afford to maintain a physical office space.

One solution to this problem is to move to a remote working model. This could involve having employees work from home, or setting up an office in a cheaper location.

While there may be some initial costs associated with setting up a remote working arrangement, it is likely to be more cost-effective in the long run.

Reduce your marketing expenses 

Another way to reduce expenses is to cut back on your marketing budget. This could involve reducing the amount you spend on advertising, or cutting out certain marketing activities altogether.

Of course, it is important to strike a balance between saving money and ensuring that your business is still visible to potential customers. But with a little creative thinking, it is possible to reduce your marketing costs without compromising on visibility.

Invest in automation

One of the factors making the current cost of living crisis worse is how it dovetails neatly with the late payment crisis. Late payments have always been a problem for small businesses, but they’re becoming increasingly common.

In the UK alone, the average small business is owed £24,841 in late payments. This can have a devastating effect on cash flow, making it difficult to meet day-to-day expenses, let alone make long-term investments.

One way to help mitigate the effects of late payments is to invest in automation. There are now software solutions available that can

One way to combat late payments is by investing in automation. There are now software programs that can help you track payments, send reminders, and even automate the collections process.

While investing in new software may seem like a luxury, it could be the difference between staying afloat and going under.

Chaser allows our customers to save 15 hours or more a week on chasing late payments and gets you paid, on average, 16-days sooner!

Staying afloat

The current cost-of-living crisis is affecting small businesses in a number of ways. If you're a small business owner, it's important to be aware of these challenges and take steps to mitigate them.

By taking action now, you can help ensure that your business survives and thrives in the months and years ahead.

To find out how Chaser can help you stabilise your cash flow and avoid the cost-of-living crisis, book a demo with us or try out our 10-day free trial!