When it comes time to pay your suppliers, do you find yourself feeling the financial squeeze? You’ve likely heard about the ongoing ‘cost of living crisis’ in the news, but have you ever wondered how it directly affects your small business?

Picture this scenario: your suppliers are sending invoices your way like flaming torches, and escalating costs are burning a significant hole in your bottom line, ultimately impacting your hard-earned profits. However, there’s a crucial aspect to understand: a sneaky 10% inflation doesn’t merely trim your profit from £30,000 down to £27,000, as commonly believed.

Let’s roll up our sleeves and dive into the numbers with a real-world example. We’ll demonstrate how a 10% inflation rate can shake up your financial equilibrium, potentially leaving you with a less-than-desirable outcome.

1. Assessing the Impact: Imagine your business has a turnover of £200,000, with expenses totaling £170,000. This leaves you with a healthy net profit of £30,000.

Now, here’s where inflation comes into play. A 10% inflation rate would increase your costs by £17,000, significantly reducing your net profit to £13,000. As a result, your monthly paycheck shrinks from £2,500 to just around £1,083. It’s a grim reality.

1. Pricing Strategies: In light of this situation, it becomes crucial to examine your pricing strategies. Don’t be swayed by political discourse on TV that discourages price adjustments due to inflation concerns. After all, they won’t cover your mortgage when your financial resources run low.

Your clients are witnessing price hikes across the board, and they understand that businesses need to adapt to economic changes. It’s an opportune time to consider adjusting your prices – it’s not about becoming overly profit-driven but rather ensuring the sustainability of your business.

1. The Value You Deliver: Persisting with low prices may lead you down a stressful path and jeopardize your business’s longevity. To avoid such a catastrophe, your pricing strategy should aim to:

• Provide each client with exceptional service and attention
• Attract and retain top talent by offering an excellent work environment
• Allocate time and resources for continuous upskilling
• Address various financial needs and investments in your business

Remember, in a race to the bottom on price, only the cheapest option prevails. You don’t want to be the runner-up in this race. Instead, price your services sensibly, and you’ll enjoy benefits such as:

• Working with clients who value your expertise
• Offering a service you can take pride in
• Building a strong reputation in your industry
• Realizing your business aspirations and growth potential

If discussions about financial matters like these resonate with you, consider enlisting the help of an accountant who can also serve as your business partner. They can provide valuable insights, bounce off ideas, and guide you on your entrepreneurial journey.

Keep in mind that we’ve witnessed businesses come and go, and the wealth of experience we’ve gathered is a valuable resource we’re ready to share. These conversations are the cherry on top of our job, so if you ever feel the need, don’t hesitate to reach out. We’re all ears and equipped with calculators to assist you.