With the difficulty of the pandemic not far behind us, small businesses are facing yet another economic challenge – inflation. With prices at a 40-year high, you’ve probably already seen the impact on your business’s bottom line. We take a look at how the rising inflation rate affects your business and how you can reduce the impact.

At the time of writing, UK prices are rising by 9% a year. The Bank of England has warned that within months it may reach 10% as energy prices rise and put pressure on households.

It’s not only households that are feeling the strain of inflation. SMEs are struggling with rising operational costs and finding ways to keep prices low without cutting corners on quality.

What to expect from a rising inflation rate

Lending firm Funding Circle has neatly summarised the three main ways inflation hits small businesses:

• Increased cost of materials and stock
• Increased shipping costs
• Increased employee costs with inflation rising wages

Perhaps you could also consider the increased cost of postage, manufacturing, fuel, and VAT, and the fact people are buying less and struggling to pay back credit.

With so many price rises, it’s an important time to make sure finances are watertight by collecting debt in a respectful and timely manner. Ensuring cash flows smoothly through your business will prevent you from being unable to pay your own creditors.

At Anvil Business Advisory collecting payments from debtors, while maintaining a strong relationship, is something we can help you with.

Ways to reduce the impact of inflation on your business

Research has shown that 1 in 4 SMEs are tackling inflation by raising prices. This seems the most obvious solution, however, it needs to be carefully communicated with clients and customers. But being authentic and honest about the situation you are in will only get you so far.

Believe it or not, expansion is another option. Take your best sellers and find more places to sell them. This way you can bulk buy and negotiate better prices with manufacturers.

You should also have a detailed look at your finances. Check you are getting the most value from your credit card, chase invoices, and refinance debt. Anvil Business Advisory can help you assess your finances, recover late payments, and renegotiate payment terms to get the best deals.