A perfect storm of negative drivers is disrupting businesses nationwide. The lingering impacts of the pandemic and Brexit, the war in Ukraine, fuel shortages and rising energy prices, a scarcity of labour and rising inflation are among the seismic forces making life and business difficult.

To further understand and quantify the impact of these on the cost of doing business in the UK, Equals Money conducted a survey of 1,000 C-level UK business leaders. 

75% say that the tough current economic ecosystem makes it “challenging” to keep going and more than a quarter (28%) say that it’s “very challenging”, with 20% worried that their companies will fold. A whopping 97% expect to experience knock-on effects to their business due to the soaring cost-of-living for employees and consumers. The key takeaways for business from our research are:

Poor cash flow is troubling most businesses

Following years of disruption, 92% of UK businesses face cash flow struggles, with the top causes in today’s climate reported as:

  • Rising energy prices (22%)
  • Supply chain issues (20%)
  • Late payments from customers or suppliers (18%)
  • Reduced customer demand (18%)
  • Rising interest rates (18%)

Costs are rising universally

More than half (55%) said their costs have increased consistently over the past two years of the COVID-19 pandemic., As they continue to contend with several interplaying economic challenges, most businesses (65%) expect their costs to increase in 2022, while a quarter (24%) anticipate that their profits will fall.

The five cost areas business leaders report  to have increased the most since 2022 are:

  1. Insurance (59%)
  2.  Sales and marketing (58%)
  3. Technology (58%)
  4. Professional services (58%)
  5. Tax (57%)

The cost-of-living crisis is biting hard

Almost all business leaders (97%) expect the current cost-of-living crisis to create fresh challenges. The most significant of these is an anticipated reduction in consumer demand, which is listed as a major concern by 37% of decision-makers.

Around a third of firms expect further issues to spring from the cost-of-living crisis, including:

  • Difficulty meeting growth targets due to reduced sales (35%)
  • Increased in employee turnover (35%)
  • Increase in employees requesting pay rises (34%)
  • Changes to the prices of their products or services (33%)
  • Damage to employee morale (32%)

Brexit and coronavirus are casting a long shadow

Two in five (40%) business leaders report that both Brexit and coronavirus have increased their overall business costs.

Brexit has had the most significant impact on the price of raw materials (43%), imports and exports (42%) and manufacturing and production (42%).

Comparatively, the biggest cost increases following the pandemic are in imports and exports (42%), use of professional services such as accountants, lawyers and consultants (40%) and sales and marketing (39%).

Many business leaders are considering drastic action

Our study shows that nearly all respondents (91%) are taking significant action to mitigate risk, maintain competitiveness and protect their cash flow.

Within this group, two-thirds (65%) have either already pivoted their business (32%) or are currently considering doing so (33%). More than a quarter (27%) of leaders are currently looking to sell their business, while a further 17% have considered selling.

The results of the Equals Money survey are echoed by The British Chamber of Commerce’s recent research, which found firms across the country are under intense pressure from a variety of costs. It reported that three quarters (73%) of them are raising prices in response to the increasing outlay. 

How businesses can respond to financial pressure

There are a number of ways businesses can actively save money during these difficult times:

  • Conduct a thorough spend analysis. By looking for repeating costs that add up or expenditures that are larger than they should be, businesses can make a change and save money. In addition to eliminating waste, comprehensive spend analysis can help a business forecast future costs more accurately.

  • Check what currency you’re spending in. Equals Money’s research shows that more than half of SMEs pay for a software subscription in another currency, often euros or US dollars. Banks simply don’t offer the flexibility or affordable rates that businesses need, so if your business is spending money abroad on a regular basis, it may be worth partnering up with a currency specialist.

  • Review supplier relationships. Examining your supplier relationships comes down to more than just money: businesses also need to consider flexibility and reliability. In light of the economy-wide uncertainty, businesses may even want to consider spending a little bit more for a shorter-term contract. When factoring in the cost and logistical challenge of shipping, it might make financial sense to pay slightly more per unit from a supplier closer to home.

  • Stop relying on banks. High street banks are never going to be the cheapest or most flexible option, especially on things like loans, foreign exchange, and expenses. It’s worth taking a little bit of time to explore the rapidly growing marketplace of alternative financial service providers, as finding the right one can mean serious long-term savings.

The challenges the pandemic posed and the resultant financial impacts, together with other events, have made it a tough period for UK businesses. We are not out of the woods yet, and all signs indicate things will worsen before they get better.

With costs set to increase across most key areas, it is even more important to use every tool available now for businesses to control and have visibility over their spending.

 About the author: Simon England is Managing Director at Equals Money.

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