The Cost of Living Crisis and Its Impact on Businesses

In 2023, the cost of living crisis is on the minds of everyone in the UK, but it’s not just households that are feeling the pinch. Businesses have also been grappling with the repercussions, particularly those still recovering after the pandemic.

Here, we’ll explore the cost of living crisis and what it means for UK businesses – from its underlying causes to how businesses can successfully negotiate the coming months and keep moving forward  in these challenging times.

What is the cost of living crisis?

The cost of living crisis refers to the fall in ‘real’ incomes experienced by households and businesses in the UK since the end of 2021. 

This is because the income that people or businesses are earning is not keeping pace with rising costs, and in some cases is simply insufficient to cover their basic expenses. This causes a ripple effect throughout the economy, leading to a continued period of financial instability. 

The impact on business has been widespread, with 72% of business owners stating they’re worried that the crisis may adversely affect their company.¹

What caused the cost of living crisis?

There are a number of significant factors that have contributed to the current crisis. The Covid pandemic caused global supply chain issues, which has forced up prices and created delays in meeting demand. It also created backlogs in health systems which are impacting people’s ability to work, and taxes have been increased to pay for Government costs such as the furlough scheme and Bounce Back loans.  

Other global events have also affected fuel costs and the availability of goods and materials, which puts up prices further. Plus there are longer term issues that have evolved slowly over time, such as increased housing costs and low wage growth, that have been compounded by these recent developments. 

How has the cost of living crisis affected businesses?

The cost of living crisis directly impacts businesses in many ways. As individuals and families struggle with costs, they have less disposable income to spend on goods and services, and even cut back on essentials too. 

Reduced consumer demand leads to decreased sales and revenue, posing significant challenges for UK businesses.

Businesses themselves are also facing rising costs caused or accelerated by the crisis, including employee wages, rent, shipping, utilities, and materials, amongst other supply chain and running costs. As the cost of doing business increases, many are having to make difficult decisions on putting up prices, finding efficiencies or reducing staff levels. 

How businesses can tackle the cost of living crisis

While businesses continue to face significant challenges, there are steps you can take to mitigate their impact and set yourself up for success in the months and years to come.

Focus on resilience

In our recent report on “Why resilience is key to growth and success”, we surveyed 1,200 SMEs and examined different aspects of financial, operational and personal resilience. 

We found that resilient businesses were 3 times more likely to have grown in 2022, and were 6 times more likely to grow this year.

There were a number of practical steps to consider too. Operational resilience was just as important to building success as financial, and looking after both yourself and your staff will help you take on difficult challenges.  

Some of the key takeaways from the report include:

Creating or expanding your contingency plan. This includes scouring your business for ‘single points of failure’ where you currently have no alternatives.

Test new ways of doing business and identify ways in which you could embrace survivable trial and error.

Diversify your products and services, or seek out new sales channels – whether online or offline.

Build a stream of regular customer feedback, so you’re completely in tune with your customer needs. 

Create mechanisms for staff to make suggestions and give ideas

Make sure there’s downtime in your personal routine and take time off to refresh. Invest in staff wellbeing initiatives such as mental health first aiders.

Find out more about how resilience can help your business.

Look at reducing costs

Can you get ahead of inflation by paying up front? Or looking at your credit options to find the most affordable solution to fill cash flow gaps? If you have existing debts, consolidating them could help to reduce costs or monthly repayments.

Find a mentor

Valuable in good and bad times, seeking expert advice, whether in your local community trade bodies or trusted connections, a mentor or peer can provide fresh perspectives and connections to help you navigate difficult situations. 

How Funding Circle can help

At Funding Circle we offer a variety of products that can help you through the cost of living crisis, from business loans to short term lending.

Funding Circle business loans

Borrow from £10,000 to £500,000 over up to 6 years. All loans are fixed rate and come with no early settlement fees. 

Asset finance

Borrow up to £5 million to fund new equipment, vehicles, machinery or other assets through our partners.

FlexiPay

Spread the cost of business bills, invoices and more over 3 months with an interest-free line of credit of up to £250,000.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.