UK inflation rates are currently at their highest level in almost 30 years which is impacting costs, as bills begin to spiral. This economic uncertainty isn’t wholly a surprise, amidst Brexit red-tape untangling, supply-chain challenges, and the ongoing effects of the pandemic, some level of instability was bound to happen.
However, these sudden fluctuations could cause problems for years to come, which is unsettling news for many business owners.
Rising costs – an existential threat to many businesses
In this article, Tom Walker, Partner at Wellers, one of the UK’s leading accountancy firms, offers his advice on how to mitigate against rising inflation and energy costs.
Recently, rising energy prices have been high on the news agenda, with gas and electricity bills expected to soar throughout the year. The Federation of Small Business (FSB) has warned that these rising costs could pose an existential threat to many businesses.
It has mainly been thought of as a consumer problem, with family income predicted to be tighter than usual. But it potentially poses a greater threat to businesses. Suppliers are expected to increase their charges of wholesale energy by half or more in 2022.
The problem for businesses is that the energy price cap doesn’t apply, so theoretically, suppliers can charge what they please. It’s less of a problem for big corporates, as they can use their purchasing power to negotiate good deals. But unfortunately, SMEs don’t possess this same power.
So, what can you do about it?
Mitigating against rising costs
Check your current energy plan and what you have allocated in your business budget for utilities. The likelihood is your expenditure on energy this year could exceed what you originally budgeted for. If you are on a fixed rate, you won’t be immediately affected by rising energy costs.
Although you should keep an eye on when your contract expires or is up for renewal. If you aren’t on a fixed plan, or you’re out of contract, fully escaping high tariffs will be difficult in the current climate but it’s still worth shopping around.
In lieu of additional Government support to help businesses through the current challenges, the most effective way to reduce energy bills is by minimising energy consumption where feasible.
Overall, businesses could be significantly more energy efficient than they are. And it doesn’t have to be difficult to make savings. Things like turning off equipment when it’s not in use and switching off lights after hours can make a noticeable difference to monthly bills.
Other options lie with reconsidering your business model. Are there opportunities for employees to work from home? Can you reduce your premises size as a result? Are you able to invest in more energy-efficient equipment? There are grants available from energy providers and the Government which will help with this.
The final thing to consider is whether you are paying for too much energy in the first place. With bills rising steeply, ensure that you are only paying for what you are using by taking regular meter readings and checking them against what your supplier is billing you for.
Although it’s useful to be in credit, when finances are stretched, it’s better that the money is in your bank account rather than theirs.
The above are preventative steps to help mitigate against challenges of rising costs. But, if you already find yourself in a sticky situation, you should take immediate action. Make sure you speak to your current provider to explain your situation.
They should be able to work with you to offer a manageable payment plan, especially as providers are under increasing scrutiny to act with a conscience. If necessary, you can also investigate business hardship funds which are available to those who need them.
The worst thing to do is ignore the price rises in the hope that they won’t hit your business. If you ignore a leak, it’ll become a burst pipe before you know it and at that point, it’s much harder to stem the flow.
If you need advice on how to manage business finances during rising inflation, speak to your accountant who will be able to offer you practical advice on what to look for and what grants will apply to your business.
To find out more, please visit the Wellers website.
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