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Brighton Office: 01273 202311

Wimbledon Office: 020 8946 1212

Worried about the ongoing cost of living? Accounting advice for small business owners

The impact of the cost of living crisis on small businesses

Running a small or medium-sized enterprise (SME) can be challenging enough as it is. Following hot on the heels of the pandemic, the cost of living crisis has been negatively impacting businesses for some time now.

Soaring inflation rates and skyrocketing fuel and energy prices have led to supply chain issues. Along with the end of pandemic-related Government support and relief schemes and a drop in demand, many SMEs are facing serious financial pressure.

Sole traders and small business owners are being hit hard, both personally and professionally. As a trusted team of accountants, we are here to try and help ease the pressure of the cost of living for our clients.

The effects of the cost of living crisis on SMEs

The cost of living crisis is attributed to the combination of high inflation and low wage growth.

The cost of living increased sharply across the UK from 2021 and into 2022, with the annual rate of inflation hitting 11.1% in October 2022 – a 41-year high (Source: UK Parliament – Rising cost of living in the UK). Inflation eased in subsequent months to 8.7% in May 2023 but it has not fallen as quickly as expected.

Small and medium-sized businesses are likely to suffer more, as economies of scale dictate that larger companies tend to be more efficient, and therefore resilient, by comparison.

When inflation rises more rapidly than wages increase, households have less money to spend on the essentials, such as rent/mortgage, food and energy bills. This also means that consumers have less disposable income to spend on non-essential products and services.

In addition, spiralling energy bills have particularly impacted on energy-intensive sectors, such as manufacturing and hospitality.

The impact of rising interest rates on small businesses

Rising interest rates are affecting the cost of borrowing which is often so vital to growing your business or keeping it afloat when times are tough.

Not only do interest rate hikes have the potential to affect your investment decisions or expansion plans, again, they also impact consumer spending. Products and services may be less in demand if your customer base is under financial pressure.

Rising inflation also puts pressure on business owners to potentially pay staff higher wages to reflect their increased cost of living. This action then creates a deficit that many owners try to cover by raising prices. It goes without saying that increasing prices can drive customers away.

Many SMEs are being compelled to trim down their staff, restructure, reduce business hours and, in some cases, have no choice but to shut down completely.

How can accountants help SMEs caught up in the cost of living crisis?

Here at Hartley Fowler, we are entrusted to provide sound accounting advice for small business owners, medium-sized enterprises and sole traders.

Over the years, we have played an essential role in supporting our clients. We don’t just provide value-added services, we also offer advice on a strategic level. This might include risk-adjusted forecasting as well as cash flow modelling.

Expert guidance on accounting strategies

While many small business owners are facing financial challenges, there are steps they can take to lessen the impact of rising interest rates and the cost of living crisis.

Our team of experts can provide tailor-made advice and a wide range of business accounting services, including:

  • Bookkeeping
    Taking care of bookkeeping ensures that you have an accurate and reliable overview of your income and outgoings
  • Business Plans
    We can review your business plan in line with current market trends and support you with future-proofing your business
  • Financial Reports
    Providing thorough financial reporting services and management accounts will give optimal insight
  • Debt & Cash Flow Management
    Ensuring you are managing your debts effectively and optimising cash flow
  • Business Structure
    We can advise on whether your business is structured in a tax-efficient way – e.g. registering for VAT
  • Account Reviews
    Assessing your profit and loss means that you can potentially ‘carry back’ a loss to the previous year and obtain a rebate
  • Tax Relief
    We’ll ensure that you are claiming any tax relief that you’re entitled to
  • Lending Options
    Looking at available grants and other lending options can help you to grow
  • Business Expenses
    Offsetting your business expenses against your tax bill can represent a tax saving as well as reviewing your ‘allowable expenses’ or ‘capital allowances’
  • Detailed Financial Reporting
    Potential write-downs and adjustments related to inventories and receivables
  • Reviewing Costs
    Adapting pricing strategies and auditing costs in line with changing economic conditions can help your business in tricky economic climates

Here to support small business owners

Without a doubt, this is a very difficult time for many small businesses. However, we are here to help. By sharing proactive and tailored advice, we can help you adapt to current challenges, alleviate financial pressure and navigate through this difficult economic period.

To find out how we can help you and your business through this cost of living crisis, please call and speak to a member of our knowledgeable team on:

Wimbledon office: 020 8946 1212
Brighton office: 01273 202311