Small business owners are no strangers to challenges but recently the demands have become increasingly onerous. The Government’s budget heralded an increase in employers’ NI contributions, plus the forthcoming Employee Rights Bill is set to put increasing pressure on SMEs.
Moreover there is rising inflation and a general slowdown in the economy so it’s no wonder small businesses are feeling the pinch.
So what can business owners do to mitigate the impact of these changes and continue to run a profitable business?
Here are a few ideas.
- Optimise Workforce Efficiency
One of the first areas a small business can address is workforce efficiency. Rather than simply hiring more staff to meet demand, businesses can look for ways to streamline operations and make better use of their current workforce.
- Cross-Training Employees: Cross-train employees so they can handle multiple roles within the company. This reduces the need for additional hires and ensures that your existing staff can adapt to changing business needs.
- Invest in Technology: Automating repetitive or time-consuming tasks can help reduce the need for additional labour, allowing the existing workforce to focus on higher-value tasks. Technologies such as project management software, customer relationship management (CRM) tools, and accounting software can help businesses save time and money.
2. Adjust Pricing and Increase Value
While it may not always be easy, adjusting pricing to reflect higher operational costs can help small businesses stay afloat. However, it’s crucial to approach this carefully to avoid alienating customers.
- Review and Adjust Pricing: A small, incremental price increase might be necessary to offset the rising costs of wages and National Insurance. This should be done thoughtfully, considering what your customers are willing to pay.
- Offer Value-Added Services: Instead of just raising prices, think about ways to offer more value to your customers. Bundling services or offering loyalty programmes can justify price hikes and make them more palatable.
3. Improve Employee Retention
Hiring and training new employees can be costly, and with rising wage demands, it’s essential to focus on retaining your existing talent. High turnover rates can exacerbate the financial strain from rising wages, so companies should invest in employee satisfaction and retention strategies.
- Offer Non-Monetary Benefits: While direct salary increases are a common way to attract and retain staff, SMEs can also focus on non-monetary benefits such as flexible working hours, work-from-home options, and wellness programmes.
- Career Development Opportunities: Providing opportunities for employees to grow within the company, such as mentorship programs, training, and promotions, can improve retention rates and help employees feel more invested in the business’s success.
4. Take Advantage of Government support and grants
Governments often provide financial support, grants, or tax breaks for small businesses to help mitigate the challenges of rising operational costs. If you are a small business you should stay informed about any available programmes and utilize them to their advantage.
- Research Available Grants and Subsidies: Many Government bodies offer financial aid for SMEs, including subsidies for training employees, innovation grants, or relief programmes for small businesses facing economic hardship. Researching and applying for these schemes can help offset some of the financial burdens.
- Tax Relief: Some regions offer tax relief for businesses, particularly when they invest in new technologies, green energy, or create jobs in specific sectors. These benefits can provide much-needed financial relief.
5. Explore Flexible Work Models
Adapting to new work models can help small businesses manage rising costs without compromising productivity. Many businesses have successfully embraced hybrid or remote work options to reduce overhead costs.
- Remote Work: If feasible, offering remote work options can reduce the need for office space and utilities, which can help lower costs. While remote work has its challenges, investing in remote work technology and practices can ultimately reduce operating expenses.
- Flexible Hours: Flexibility in working hours can help employees manage work-life balance, potentially reducing turnover and improving overall productivity.
6. Increase marketing and sales activity
New customers are the lifeblood of SMEs but business owners need to really concentrate on increasing awareness of their brand and generating enquiries. There are many ways of doing this.
- Social media is a very cost-effective way of getting your company noticed and engaging with new customers. Make sure your LinkedIn and Facebook pages are up to date and you are posting new content on a regular basis; this can be announcements about new products or changes at the company; reposting interesting content from other sources or simply refreshing your design and layout.
- Web site – make sure your web site is up to date and well designed to stay fresh. Also check your SEO so you attracting new visitors by using relevant key words.
- Blog posts – regular Blog posts are a good way of getting interest in your company by publishing interesting content.
- Networking -join a few online and physical networking groups as they are a great way of meeting new business owners who are happy to share contacts that can turn into sales. Cost are quite reasonable when you consider the long term return.
7. Negotiate with Suppliers
Rising costs aren’t limited to wages and National Insurance. The cost of goods and services from suppliers may also be increasing. Small businesses should be proactive in managing their supply chain and negotiating better deals.
- Bulk Purchasing: If possible, purchasing in bulk can lead to discounts, reducing the per-unit cost of goods. Additionally, long-term contracts with suppliers may offer price stability during periods of inflation. Perhaps you can team up with other business owners to create a buying group to get more purchasing power.
- Evaluate Multiple Suppliers: Don’t settle for the first quote or supplier you encounter. Regularly review your suppliers and explore alternative options that might offer more competitive prices or better payment terms.
8. Re-evaluate Your Business Model
Sometimes, the only way to effectively deal with rising costs is to rethink your business model altogether. This doesn’t mean abandoning your core business but finding new ways to operate more efficiently or diversify your revenue streams.
- Diversify Income Streams: Explore opportunities for passive income or new service offerings that align with your business model. For example, if you’re a small manufacturer, you could look into licensing your designs or providing consulting services.
- Cost-Cutting Measures: Re-evaluate areas of your business where you can cut unnecessary costs without impacting quality or customer satisfaction. Small changes, such as reducing energy consumption or optimizing delivery routes, can have a significant cumulative effect on your bottom line.
9. Communicate with Employees
Transparency and communication are vital when navigating financial challenges. Keep your employees informed about the company’s situation and involve them in brainstorming solutions. If wage increases are not feasible, open a dialogue to discuss alternative forms of compensation or perks.
- Employee Input: Employees may have valuable insights on how to improve efficiency or reduce costs. Encouraging an open exchange of ideas can lead to creative solutions and foster a positive, collaborative work culture. Employees can also have great ideas when it comes to attracting new customers so involve them and offer incentives.
Conclusion
Rising costs of National Insurance and wages present significant challenges for small business owners but by implementing strategic measures, smaller businesses can weather the storm. Optimizing operations, focusing on employee retention, adjusting pricing, and seeking available financial support are just a few of the ways SMEs can reduce the impact of increasing costs. By being proactive, staying flexible, and continuously looking for opportunities to innovate, SMEs can continue to grow and thrive despite external economic pressures.
In the end, it’s not just about managing costs but finding smarter ways to run a business that is sustainable in the long term.
Paul Vousden of Corporate Counsel is a business growth consultant who advises SMEs on start-up, scaling operations and selling their businesses.
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