The future is bleak: How the cost of living crisis is impacting small businesses

Inflation and the cost of living crisis is hitting the British population hard – with small businesses feeling the impact particularly acutely.

Government figures from last month found that, in August alone, almost 2,000 registered businesses went bust in England and Wales. This is an increase of 43% on the same period last year.

It was also the third highest month for insolvency since January 2019 – and an increase of 6% on the previous month of July. This suggests that the figures could mark the start of an upwards trend that may only get worse as winter hits and bills get even steeper.

The 1,933 insolvencies take the total number of companies going out of business to 20,000 in 2022 so far – an increase of 72% since 2021.

It’s a tough time that has left a lot of businesses questioning their futures.

In fact, a recent survey by Nucleus Commercial Finance found that almost a quarter of UK business leaders (23%) fear their company will not survive the financial year due to the current cost of living crisis, and almost three quarters (72%) of owners feel the current cost of living crisis is a cause for concern for the survival of their business.

Here, Metro.co.uk speak to some of them to find out how they’re being impacted, and how they’re feeling about it all.

Frederique Villain, owner of City Retro – a vintage and retro clothing shop in Glasgow

‘As is the case for most businesses, I am worried that all bills keep on creeping up – not only for us but for individuals as well. Businesses will struggle to pay their bills and customers will struggle to find the money to spend in those businesses. 

‘The future is looking pretty bleak. Every day on social media or walking around I see businesses closing down. It saddens me that these owners have lost what they worked so hard for for many years, to no fault of their own.

‘And let’s not forget, many people have lost their jobs due to those closures.

‘For me, the real struggle has been that I mainly purchase stock from abroad – the reason being that if I were to buy from the UK, I would be purchasing from suppliers who get their stock from the same places but increase their prices dramatically, so it makes sense to cut out the middle man and get it straight from the source).

‘Now, the cost of stock has increased a lot, due to increases everywhere, the war between Russia and Ukraine, and new Brexit rules. The price of fuel and transport charges have doubled. 

‘All my other bills are creeping up as well. And that’s both for the business and the home, so I would have to pay myself more to afford my increasing home bills too. This means more valuable resources drained from my business. 

‘I refuse to put my prices up to pass it on to the consumer, it would be a death sentence, I feel my prices are right on the mark and an increase would only put them off coming in. 

‘To give you an idea of how much it actually takes to run a small/tiny business like mine (and my shop is probably the size of your living room…) on a monthly basis we have to cover things including rent, council charges, tax, VAT, wages, stock, delivery, electricity, insurance, accounting, music licence, phone, broadband, water, business bank charges, marketing, and all of the other miscellaneous side purchases.

‘We are talking at least £8,500 a month. And I’m a very small fish compared to other businesses paying bigger rent rates and huge gas bills on top. 

‘I’ve had to register for VAT this year, which might sound like a great thing – and I should apparently be proud of this achievement as it means my shop is doing extremely well – but when your bills are constantly going up, you have to give away 20% of your monthly takings, on top of taxes, to the government. This is even if you don’t reach your monthly bills target. That’s a tough one. 

‘I think that in this particular difficult times for all businesses the VAT threshold should be increased, or tax reduced.

‘Because who wants a deserted town, a depressed population, no jobs… It really feels that that’s where we are heading.’ 

Julia McGlennon, Co-Owner of Joe’s Café, a small ‘destination’ cafe serving breakfast and brunch, in Brighton and Hove

‘What future?! We literally live from hand to mouth.

‘Our staff are paid along with all our other commitments – rent to our landlord, we pay our suppliers, all our utility bills, insurances for the business, licence bills, along with other incidental bills (i.e. things breaking down, such as new equipment or drains blocking – a bill we’ve had to pay just today). 

‘[As owners], we have not personally had any pay for well over a year. And price increases are continuous. As quick as cash comes in, it goes out.

‘For example, our wholesale shopping bill has increased by 30% and every week it gets more. A sack of coffee in February 2022 was £128 for 12kg of coffee beans – this is now £168 Cooking oil has doubled from £19.99 for 20 litre to £39.99, in part due to the current situation in Ukraine.

‘We did increase our menu costs by 10% back in May 2022 but this increase is not covering our ongoing price rises. 

‘It’s also important to consider that everything has a ‘ceiling price’.  We tread a very, very fine line in what we charge our customers. It is important to remember that we’re all in the same boat and customers are cutting back on what they consider a luxury. 

‘Therefore, for our business to survive we need governmental help in all areas.

‘We also experience problems meeting our commitments to HMRC and our VAT bills – whilst their letters state they are sympathetic I can tell you that this is not the case if you owe them money.

‘The world only goes around if we all have disposable income – without disposable income we cannot spend and therefore businesses like ours will not survive.’

Sanjay Aggarwal – co-founder of Spice Kitchen, a family run, award-winning spice and gift company

‘The biggest issue we’ve faced as a business was the increased cost of shipping our tins into the UK. Prior to Brexit and other big world events it was £2,000 for shipping costs, and then suddenly, this rose to £8,000.

‘This had a huge impact on us as a business and led to our first price increase in over a decade. 

‘It was a horrible decision to take, but we’d absorbed all of the costs from Brexit already and it had got to a point where we couldn’t realistically continue to do business without putting our prices up.

‘I wrote a personal letter to our customers with a real heavy heart as I was genuinely gutted and resisted it for as long as I could.

‘My biggest concern is the impact it has on staff, I hear people talking and worrying about how it is going to affect them. ‘As an employer, it’s awful to know people are working so hard and then still struggling because of all of these increases. 

‘Small businesses are often passion projects, with people doing what they do for the love of it rather than simply to pay bills and so it’s hard to see other small business friends being really dragged down by this when they just want to get on and share their work and passion with the world.’

Ruth Robinson, The Dory, a seafood restaurant home to an art gallery and an on-site kitchen garden filled with fruit, vegetables, and herbs, situated in the East Neuk of Fife

‘The cost of living crisis is rather a doom and gloom picture and that has been reinforced by the media, which has an impact of consumer confidence.

‘We’re a seasonal business linked to tourism in the area and we do normally see a drop off in trade from October/November onwards.

‘Winter cash flow is always tricky but we are very nervous about this winter. We’ve already seen consumer spending go down from August onwards.

‘Of course people will be looking at their discretionary spending and restaurants like ours will see a reduction in people dining out.

‘In terms of energy price rises, businesses still don’t know what action the government will take to mitigate this. Our energy prices have doubled but, with our energy contracts locked in for a few more months, we’ll take the real hit in April.

‘If the government doesn’t do something about the business energy price cap, it’ll be a very difficult winter for many businesses. 

‘I imagine that closing seasonally will be the only option for some businesses – particularly in rural areas – and of course, there’s a huge knock on effect in terms of staffing with that. We definitely will not do this – and are committed to staying open year round.

‘Rising food costs, this hugely affects our business but we can’t simply keep increasing our prices during a recession.

‘We have to take some of it on the chin. We have to look for the same level of high quality but be creative in terms of cheaper options.

‘We’ve taken ribeye steak, a prime cut, off the menu and replaced it with beef cheek, for example. It’s going down really well!

‘Seafood like halibut, turbot and lobster might be something that we take off the menu too. Monkfish for example costs £32 a kilo now and that’s before it’s trimmed – this would equate to more than £5 per portion before adding anything else to the plate or taking into account the cooking, preparation and staffing costs!

‘The other major cost pressure for us and for the hospitality industry in general is staff wages. The industry has gone through a period of self-appraisal to help improve the perceptions of it as a place to work. There’s a real need to improve conditions and wages to retain staff and this is important for us at The Dory. T

‘The record inflation we’re seeing means that wages have to rise at least 7% just to keep pace with this though and there’s only so much a business can do.

‘Dropping VAT again to between 5%-12% would be really help the industry with this kind of cost.’

Gary and Anna Hardley are co-founders of Worthing-based Vegan Street Food Company – all their food is plant-based, free from dairy, wheat and nuts

‘It’s a tough time for all – the electricity bill at the shop is currently more expensive than the rent, but you cannot keep increasing product prices otherwise you’ll end up losing your customer base – so margins are minimal.

‘As such, we’re always looking at additional ideas to bring in additional income which in turn stretches resources.

‘The electricity costs have increased by 50% in the last year, despite less equipment in the shop due to a switch from domestic to commercial fridge unit use.

‘Fuel usage has been an additional consideration – a tricky one to balance when travelling further afield to festivals at the weekend to bring in more revenue. As such, we’ve switched to a hybrid vehicle and trying to pick events that are geographically close to Worthing in order to strike that financial balance between income and expenditure.

‘We are doing everything we can to ensure this [cost increases] isn’t required, for example looking at menu lines and making them consistent through all operations – at the school, in the touring ‘Plant Pod’ and at the Vegan Street Food Cafe.

‘This enables further minimisation of any food waste, ensure cost efficiency with every ingredient purchase and keep a tighter eye on the finances

‘As a small independent business, we just don’t hold the same buying power as the large consortiums.’

Kate Featherstone, The Willow Tree Coffee Trailer, Winchester

‘The last two years have been totally brutal.

‘My husband is immuno-compromised so, like many others, we went into complete shielding with our – at the time – two-year-old when COVID first happened.

‘It feels like things are just getting harder and harder for everybody, and although I consider myself very lucky to be able to run a small business and give back to the community that looked after us, it is hard to ignore the challenges we’re facing on a daily basis. 

‘Fuel went from being impossible to get to unaffordably expensive to barely affordable.

‘Our living costs are creeping up and it doesn’t seem like it’s going to get better.

‘I am genuinely concerned about the future.

‘Everything is going up, and we’re cutting back everywhere that we can. We had a smart-meter fitted earlier this year and even with everything turned off our daily cost has gone up significantly in the last three months; but it’s not just gas and electricity, it’s everything.

‘Our weekly food shop has gone up 30%, but the quality of the produce has gone down. Our weekly fuel usage has gone up nearly 50%, but we’re a driving less.

‘We have no budget left to do fun things as a family and want to be able to afford for the kids to join clubs and go on adventures, but it’s hard to see where that money will come from.

‘An increase of prices is definitely on the cards; I don’t want to pass my problems onto my customers and the simple truth is that if they can’t afford what I’m offering then my business will cease to exist.

‘It’s a balancing act between making sure I make enough money to stay afloat, without becoming unaffordable.

‘It’s impossible to say at this stage whether my business will be sustainable.’

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