Saturday, June 25, 2022

What record inflation means for small businesses that have ‘raised prices but lost customers’

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The Confederation of Small Businesses (FSB) has urged the government to take action to stem the tide of businesses going to the wall

The cost of most types of materials, from food ingredients to chemicals to fuel, have all risen significantly over the past year, which has helped put additional financial pressure on companies already battered by two years of the pandemic.

Small businesses and sole traders recovering from the pandemic are facing mounting pressures from rising costs as the prices of goods and materials they need to run their day-to-day operations have risen to record highs.

Martin McTague, the national chair of the Federation of Small Businesses (FSB), has urged the government to act to stem “the tide” of businesses hitting the wall.

“Policymakers should act now to get to the root of rising consumer inflation by relieving pressure on small businesses who are doing everything they can to absorb higher input, labor and energy costs but can only absorb a limited amount “, he said.

“As margins shrink and companies find it harder to invest in skills and innovation in the face of labor shortages and net-zero targets, the government must use the tools at its disposal to stem the tide.”

The FSB is calling for a rollback of increases in social security contributions, a reduction in corporate tax rates for small businesses, a reduction in VAT, especially on energy, and a targeted reduction in fuel taxes for businesses in rural areas who “have no choice but to use the streets”.

“In energy, policymakers should extend the help that has been given to households through the municipal tax system to micro-enterprises through the levy system,” McTague added.

Producer input price inflation, or the price paid by manufacturers for commodities, rose to 22.1 percent on the year to May from 20.9 percent in April.

That’s the highest number in the 37 years since records began, according to the latest figures from the Office for National Statistics.

As a result, the price of goods coming out of UK factories also rose to 15.7 percent in the year to May, up from 14.7 percent in the year to April 2022.

That cost hike is the top concern for a quarter of businesses, according to separate official figures released last week.

The ongoing supply chain disruption is also making life difficult for small businesses, with a fifth reporting they have struggled to source the right goods and services in the past month.

Overall, many companies are still struggling to get back to where they were before the pandemic, with one in ten companies still not fully acting, ONS figures show.

Zoe Nichols, a Bournemouth-based beauty therapist, said the post-pandemic recovery has been “very, very slow” for her and fears things will get worse in the autumn if energy bills continue to rise.

Ms. Nichols opened her beauty salon in 2010 when she had a lot of clients, but had to close it just before the pandemic to take care of her newborn child, thus becoming a mobile beauty therapist.

Last summer she managed to buy an electric car, which saves her fuel, but limited mileage means she has to limit the area she covers when she visits clients.

It increased prices by 10 per cent in April and also decided to set a £60 minimum to make the trip worthwhile, but that has meant it has lost some customers as not all can afford its increased price.

“It’s luxury self-care, and that’s why I’m scared of fall when everyone turns the heat back on,” she says.

Ms Nichols says she also had to be more proactive in making sure money kept coming in.

“I do training, I use my social media, I text my clients two weeks after I see them and say, ‘I have these dates available shortly, would you like me to book you in’… I need to work on that more ! ”

Despite all of that, she said she’s already had to cut back on personal expenses like her gym membership and her child’s swimming lessons to make ends meet.

Regarding costs, she says her suppliers have been “pretty kind” so far, but she expects prices for products she uses every day, including lashes, glue and nail polish, to increase later this year.

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