Small businesses must take steps to deal with record inflation

With inflation rising from 5.1 per cent in November to 5.4 per cent in December, small business owners regard it as their biggest concern in 2022

Last year was a momentous one for small businesses in the UK as they consistently changed and adapted to the volatile business environment to continue to grow and flourish. As we enter 2022 however, with concern still existing around COVID-19 and the recent Omicron variant, small businesses are facing several factors which they must combat in order to make 2022 another fruitful year.

With inflation jumping to 5.4 per cent – reaching the highest level since 1992, combined with the threat of rising interest rates this year, small business owners have cited inflation as their biggest concern in 2022. A recent study by small business lender Iwoca showed that nearly three-quarters of small business owners (71 per cent) thought that inflation was the biggest concern facing their businesses throughout 2022.

Sharing this sentiment is the British Chambers of Commerce’s (BCC) latest quarterly economic survey. It found that 58 per cent of small firms expect their prices to increase in the next three months and 66 per cent of businesses say inflation is a concern. In addition, 27 per cent of firms are worried about rising interest rates.

Suren Thiru, head of economics at the BCC, said: “The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months. Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above 6 per cent by April.

“The UK economy is starting 2022 facing some key challenges. The renewed reluctance among consumers to spend and staff shortages triggered by Omicron and Plan B may mean that the UK economy contracts in the near term, particularly if more restrictions are needed.

“Rising inflation is likely to limit the UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and their ability to invest.”

After rising from 5.1 per cent in November to 5.4 per cent in December, the long-term UK inflation rate is projected to trend around 3.3 per cent in 2022. Whilst it may be a turbulent year if interest rates and inflation continue to rise, there are critical steps that small businesses can take in order to navigate through 2022’s ever-changing business environment, as well as turning the year into another positive one.

Luke Davis, CEO of IW Capital advises: “Whilst it is a valid concern, there are steps that small businesses can take to deal with it and set up their businesses with the best chance to thrive in 2022. First, businesses must invest in technology. By doing this it will allow their business to maximise their customer base as well as keep their overhead under control. By utilising technology in your small business, it can differentiate you from your competitors, gaining more business as well as providing easier work solutions.

“The next step that businesses must consider is buying inventory, property and equipment early in the year. By buying the core materials that your business needs early, it takes away some of the negative impact of anticipated costs rising later in the year and also provides your business with extra stock needed to continue operations if another unforeseen event such as another COVID variant were to emerge and impact the business sector.

“A final step which small business owners must consider is agreeing to long-term agreements with suppliers. By agreeing to longer-term agreements, it will help businesses understand their cash requirements by giving them more control over their significant fixed costs over the next few years, causing them to budget easier and manage their cash.

“Small businesses in the UK have flourished over the past year and, by taking the necessary steps, I have no doubt will continue to flourish throughout 2022. Small businesses have constantly adapted to the ever-changing business environment and they seem ready to take on any challenge in order to continue to progress and develop their business.”

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