Yep, we’re officially in the thick of the cost of living crisis. It’s a nerve-wracking time for many entrepreneurs, with small business owners especially feeling the pinch.
If you’ve had sleepless nights worrying about how you’re going to pay your suppliers or support your staff, we don’t blame you. It’s likely you’ve already looked at where you can cut costs, but it seems like an impossible task when suppliers are raising their own prices.
Fear not! There are things you can do to make your money go further (and they don’t always involve cutting costs).
Regularly review your costs.
Knowing exactly where and when money is coming out of your business, is the first step to seeing where you can save costs. You could be paying for services you don’t even use, or simply aren’t worthwhile.
It rings true for both business and personal costs (and if you’re a sole trader, these often go hand-in-hand).
Check your statements with a fine-tooth comb.
By going over your accounts in detail, you might find money coming out that you were unaware of, e.g. for subscription services you no longer use. Even if it simply saves £9.99 a month, these costs snowball over time and the cash could be better spent elsewhere.
Take it one step further and ask yourself if the products or services you pay for are worthwhile, or whether you’re wasting money. Is the software you’re using delivering in a way that makes it worth its salt? Are the services you pay for providing a return on investment?
Be on the lookout for deals.
Once you’ve got a clear idea of your costs, examine whether your money is going as far as it can for the services you need. When was the last time you reviewed your providers? Can you get a better deal by going elsewhere?
If you’re a single-person business, you also might be able to get better rates. Many software companies have much cheaper individual plans, so it’s worth double-checking you’re taking advantage of your one-man-band status.
Look at ways to bring more money into your business.
Okay, so we’ve talked about your outgoing costs – but that’s not the only way to boost your cash. Increasing sales and generating more revenue is another (and more long-term) strategy to offset rising costs.
Invest in marketing.
Although forking out more money might seem like the last thing you need, putting extra resources into marketing could increase your sales. While it presents short-term costs, the longer-term effects of successful marketing will benefit your cash flow.
Look at your accounts receivable.
Let’s face it: it’s always a little awkward to chase people who owe you money. But if there’s ever been a time it could benefit your business, it’s now.
To stay on top of payments you’re owed, we recommend:
- Using direct debits to help automate invoice collection. We use GoGardless as it’s user-friendly (and gives a friendly push to clients who haven’t yet paid!)
- Activating and customising your Xero invoice reminders.
- Consider charging clients a deposit or part-payment up front to ensure their commitment and help your cash flow.
A clear overview of your accounts will also set you up for success here, so you can see exactly who owes you what.
Avoid cutting back in ways that could affect sales.
It’s tempting to tighten the belt in all areas of your business right now – but a strategic approach will get you further. Scrimping in certain areas could, in fact, slow your business down.
One of the most important assets you want to hang onto is your people. Before you have to make the difficult decision of losing a great team member, look for opportunities to save costs or generate extra income in other areas.
Consider your pricing structure.
If you’re struggling to increase your volume of sales, a new pricing strategy could be the answer to increasing revenue. Inflation is climbing, suppliers are raising their costs and if you don’t follow sooner or later, you’ll absorb all of the negative impact.
Examine external factors.
The cost of living crisis would be a whole lot easier if we had a crystal ball. Unfortunately, external goings-on are unpredictable – with the British public at the top of that list!
Take the coronation as an example; London restaurants prepared by investing in a lot of supplies for the event…and far fewer people than expected turned up.
When it comes to your business, there’s only so much you can control. Be aware of (and try to predict as best as you can) any external factors that may impact buyer behaviour.
Take time to listen to your customers.
In these uncertain times, consumers are feeling equally as worried as small business owners. Really get to know your customers; do you know what they’re feeling? Do you understand their fears and what they need?
Understanding your buyer will inform decisions that drive sales. You might find you could be selling additional services to existing customers if they need more help at this time. On the other hand, if your customer base hasn’t been hit too hard by the cost of living crisis, they might be expecting you to raise prices and won’t react if you do.
Regularly review their needs and how they’ve changed over time, so you’re best placed to tweak things in your business to meet their needs as they change.
Pay attention to your competitors.
Do you know how competing businesses are coping with the cost of living crisis? Can you see what kind of strategy they’ve adopted?
Keeping one ear to the wall while navigating the crisis won’t do any harm, and will give you a better idea of where you are in the market and how prospects perceive you.
Use the situation to your advantage.
There’s always a silver lining. Sales are down? Use the time you have from not making sales to get your ducks in a row and really look at how efficient your processes are. Ask yourself if you can tweak your sales systems, delivery systems etc. systems to deliver a better and more profitable service.
Similarly, it’s a good moment to spend time understanding exactly why your sales are changing and how you might be able to adapt to offset it. Can you see any trends? Now’s the time to delve deep and really get to grips with the information you have.
Always trust the data.
We all get gut instincts, but right now it’s more important than ever to base decisions on the cold, hard facts.
Are you forging a strategy based on what you think is happening in the business, or have you gone through the data to deduce what’s actually happening? For every decision you make in your business, make sure it’s backed up by facts and figures.
Before you do anything, understand your numbers.
It’s a precarious time with the economy and consumer behaviour shifting all over the place, but one thing is unwavering: the trustworthiness of your data. The numbers don’t lie, especially during a cost of living crisis.
Having clear, comprehensive and up-to-date financial information is like looking at something in the distance and suddenly being handed a pair of binoculars. Everything shifts into focus. Your financial data has the ability to map out the past and help predict the future.
Put simply, it’s your gold dust when it comes to making informed decisions about your business.
Having a close relationship with your accountant is a game-changer.
A great accountant will be your trusted sounding board to provide you with the right solutions at the right time. It’s your safe space to talk things over and be steered in the right direction.
Make sure to have an extra conversation with your accountant and be open about your worries during this time. You need the input of someone who knows your business; if you’re VAT registered, your accountant will already have a good idea of your numbers from your quarterly VAT returns.
Get them to help you, challenge you, and support you to improve the financial health of your business. They’ll talk you through the numbers, help you understand what’s going on and guide you on what to do next.
For more support for your small business throughout the cost of living crisis and beyond, check out our other advice on the Fearless Financials blog page.