As we move into 2023, it is important to evaluate the current economic climate for small businesses, as their confidence for future growth is currently low. It’s critical for small business owners to have a clear understanding of the current economic conditions in order to plan and prepare for the future.
There’s certainly a notable pessimism with regards to the potential for small business growth, and we explore a few of these factors in this article.
Small businesses are feeling the full force of the energy price crisis, with devastating financial outcomes.
The energy price crisis is having a profound impact on small businesses in UK and around the world. With energy prices rising, many small businesses are struggling to cope with the financial burden. The higher costs are cutting into profits and making it harder for businesses to stay competitive. The FSB reported that with the energy bill relief scheme due to end in April, 1 in 4 small businesses could be facing a very uncertain future. Without this scheme, businesses may be forced to close, downsize or restructure in order to cope with the increased costs associated with their energy bills, which is certainly concerning (see FSB Report, November 2022). Small businesses have been some of the hardest hit by the economic downturn and the energy bill relief scheme has provided a much-needed reprieve for many of them. Such a scheme will enable these businesses to remain open, or at least provide them with a financial cushion to help them weather the storm. The Chancellor, Jeremy Hunt, is due to meet with business groups on Wednesday 4th January and is expected to revise the current Energy Bill Relief Scheme, providing further support and halving business energy bills until March 2024. Let's watch this space!
The fall in consumer demand is hitting small businesses across all areas of the economy alike
The current fall in consumer demand is having a major impact on small businesses across all areas of the economy, and this is especially true for businesses that are reliant on consumer spending, such as retailers and restaurants. The cost of living crisis is the key driving factor for this as consumers experience an increase in their everyday costs such as food and fuel and are left with far less to spend on discretionary items. The British Retail Consortium (BRC) has reported that annual food inflation jumped to 13.3% in December, the highest monthly rate since it started collecting data in 2005. Factor in also higher supply chain prices, increased transport and fuel costs, as well as higher utility bills, and all sectors of the economy are feeling the pinch.
While larger businesses may have the financial resources to weather a downturn, small businesses are often less resilient and more likely to suffer from a decrease in demand. This is why small businesses need to be particularly agile and adaptable and seek new ways to generate revenue. By taking proactive measures to boost revenue and reduce costs, small businesses can better weather the storm and come out the other side stronger.
Inflation continues to rise - hitting small businesses as they trade and purchase
With the continuing rise of inflation, it is becoming increasingly difficult for small businesses to stay competitive, as their trading and purchasing costs continue to rise. This is particularly problematic for businesses that operate on tight margins, as even a small increase in their costs can put them at a disadvantage. It is becoming increasingly difficult for businesses to counter the effects of inflation, as the cost of doing business continues to rise into 2023.
Small businesses are increasing borrowing to cover shortfalls
As the cost of doing business continues to rise into 2023, the FSB Small Business Index, Quarter 3 2022 report found that the share of small businesses applying for credit rose to 12.6% in Q3, from 11.5% in Q2, despite the cost of borrowing also increasing during this period. This suggests that businesses are increasingly resorting to borrowing to cover shortfalls which is a gloomy prospect as we start the new year.
With our Business Consulting Services, we do more than provide advice, guidance and support, we can also offer you the resources and expertise to mitigate change in these challenging economic times. We help you respond to the shifting needs of your business and industry by helping you make well-informed decisions.
If you’d like to work with a partner who can help you to make your business more resilient and efficient, book a free discovery call today.
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