Small and Medium Enterprises (SMEs) face many challenges in managing their finances. In addition to the common concerns of making sales, managing inventory, and handling payroll, SMEs must also deal with the ever-increasing cost of living.
The cost of living has been on the rise for many years, and in the UK, it reached 11.1% in October 2022, a 41-year high. It had a knock-on effect on SMEs leading to increased pressure on cash flow and making it difficult for them to expand their operations. SMEs also continued to face increased pressure to raise prices, which was already difficult in a competitive market.
This article will help you combat the cost of living with five budgeting tips that your SME can use to protect your business’s financial health.
What is driving the rising cost of living?
The cost of living is determined by the price of goods and services required to maintain a certain standard of living. Many factors can impact the cost of living, including inflation, the cost of housing, energy prices, and taxes. Here are some of the main factors driving the rising cost of living:
Inflation
Inflation is a general increase in prices and decreases in purchasing power. When prices increase, the cost of living also increases.
Housing costs
As the population grows and demand for housing increases, so do housing costs. This can impact businesses that require office space or storefronts.
Energy prices
As the cost of energy, including electricity and gas, increases, the cost of producing and transporting goods also rises, which can impact the cost of goods and services.
Taxes
As taxes increase, businesses may have to increase prices to maintain their profitability.
What businesses can do to combat rising costs
Now that we understand some of the factors driving the rising cost of living let’s discuss five budgeting tips that your SME can use to combat it:
1. Automate bill payments
By automating bill payments, you can avoid late fees and penalties and ensure that bills are paid on time. This can be especially helpful for businesses that have many bills to pay each month. Many software solutions available can help automate bill payments, including accounting software and payment processing systems.
2. Analyse cash flow
Cash flow is the amount of money that comes in and goes out of your business each month. By analysing it, you can identify areas where you can reduce expenses and increase revenue. Payment analytics tools can help in the long term to make more informed decisions about allocating your resources.
3. Manage security risks
As the cost of living continues to rise, it’s important to manage security risks to prevent financial losses. Security risks can come from various sources, including cyberattacks, theft, and fraud. By implementing strong security measures, such as firewalls, antivirus software, and anti-fraud solutions, you can help protect your business from these risks. It’s also important to educate your employees about security risks and to have a plan in place in case of a security breach.
4. Keep business and personal finances separate
One mistake that many SMEs make is mixing business and personal finances. This can make it difficult to track expenses and can lead to accounting errors. It’s important to keep your business and personal finances separate by opening a separate bank account and credit card for your business. This can help you keep track of expenses and make tax season less stressful.
5. Invest in technology
Investing in technology can also help SMEs combat rising costs. One technology that can be especially helpful is a point-of-sale (POS) system that will help streamline business operations and improve efficiency. It will help automate tasks such as inventory management, sales tracking, and reporting, which in turn will reduce the resources needed to manage these tasks, allowing you to focus on other areas. Additionally, a POS system can help reduce errors in sales and inventory tracking, which can lead to cost savings over time.
Planning ahead for your business growth
A clear business budget paired with the right tools will allow you to understand where your business is headed financially, which is important when planning for the future.
At Trust Payments, we understand SMEs want to keep up with the latest payment and customer loyalty technologies but don’t have time for complexity. That’s why we offer easy-to-use services, account management and 24/7 technical support all in one service called TRU SME.
Learn more about the tools and services you need to start, run, and grow your business.
