As we continue to feel the effects of the COVID-19 pandemic alongside the Ukraine crisis and Brexit, pressure is mounting on the cost of business as more resources are getting squeezed and prices rise.
Economists have predicted various recessions to come and the climb back to ‘normality’ to be a particularly tough one over the coming years - but is there more that could be done now to help ease this? We look at how businesses, particularly SMEs who remain the most affected, can adapt their processes to make savings now.
Since the start of the pandemic, SMEs have been hardest hit despite making up 99% of the UK business population and three-fifths of employment. There is a unique mixture of challenges in transport and freight costs, supply chain and labour simultaneously being faced by the small business owner, which doesn’t have a distinct end in sight. But, what is causing all this disruption?
As the pandemic continues around the world with various lockdowns and continued restrictions, other socio-economic factors - the Ukraine crisis, Russian sanctions and Brexit - have added further pressures causing inflation to rise to its highest level in nearly thirty years.
In response to this, the Bank of England has made back-to-back hikes in the UK interest rate over the course of 2022, which today stands at a significant 1%. The Reserve Bank of Australia (RBA) has also been forced to make changes, raising its cash rate to 0.35%, making it the first increase in over a decade.
However, movement isn’t only in the banks’ figures. Businesses are feeling the effects of shortages in skilled labour, and mass disruptions in supply chain and logistics as HGV drivers are also in short supply around the world. Altogether, this is causing price hikes at the source, and in turn putting a strain on small businesses.
How this translates for the SME can be seen in the Confederation of Business Industry January 2022 survey, where average unit costs grew at a record pace and export prices continue to rise 34% q-o-q.
“Having survived the pandemic, small business owners are now confronted with rising input and labour costs, forcing businesses to raise prices or absorb higher costs within already thin margins,” comments Australian Chamber of Commerce and Industry (ACCI) Chief Executive, Andrew McKellar. “Congested supply chains, exacerbated by the conflict in Europe and lockdowns in China, are continuing to drive up the cost of everything from washing machines to microchips, with small businesses bearing the brunt of these disruptions,” he continues.
Supply difficulties are predicted to slow output with growth stalling for the rest of the year, after an already tough two years since 2020, and the majority of small business owners have already stated they are operating below capacity because of these issues.
Source: Market Finance Study 2021, UK
The outlook is currently pretty grim for SMEs, particularly those involved in imports and exports, as more consider “calling time on international sales”, according to the Federation of Small Businesses UK. The FSB survey found that one in eight small exporters had already stopped sales to the EU, with a further 9% considering doing the same. “Spiralling costs are eroding small business margins at a rate that many have never experienced before, whilst workplace absences are making it hard to operate at full capacity in a tight labour market,” said Martin McTague, National Chair.
The April 2022 iowca survey found that the biggest concern of SME owners is the increased cost of running a business, and that over a quarter have already increased prices to their customers.
So, amidst this chaos, what can be done to help make tangible cost savings for the SME now?
As more support for SMEs in the current economic climate is still massively needed, business owners need to look at what they are able to take control of to help themselves more imminently.
“During periods of significant financial stress, reducing costs across the business by even just a few percent can add up to a notable saving,” comments business consultant, Neil Debenham, “meaning business leaders need to streamline their operations as much as possible.”
In today’s business environment, efficiency really is king as costs continue to skyrocket and the term ‘time is money’ becomes infinitely true. A streamlined operation removes unnecessary steps and lengthier decision making in any process, which today often involves AI and plenty of automation from the platforms and providers SMEs are already using.
As many SMEs work on a global scale, whether with suppliers or customers, a place to start streamlining for immediate savings is in FX planning. While often an area only thought of at the point of paying an overseas invoice, with a considered process in place, SMEs can save anywhere between 2-6% in business costs with a hedging plan, as our own research shows.
It’s not enough to compare the current rate. A tool like Currency Score offers deeper insight into the true costs of FX on a business, enabling owners to see just how much is being absorbed and negatively affecting their margins. Fluenccy’s 2020 research showed that, on average, SMEs wasted $25,000 on their foreign currency just by taking the rate on the day, everytime an invoice was paid.
While in-depth FX analysis has previously been cordoned off to only large corporations with the systems and a treasury department, Currency Score makes this more widely available and accessible to the SME, which couldn’t be more timely. Critically, it's also independant and it’s free.
It’s simple; use existing FX data from foreign invoices to review how the past 12 months’ performance has been, and leverage this insight for the coming months. Trends will emerge and any excessive costs will be revealed that will inform a better currency strategy with tangible savings, which can also be automated.
As input costs continue to rise, it’s become critical for SMEs to find and plug the holes leading to waste, and FX inefficiencies is a big one that is now far easier to remedy. Currency Score offers SMEs autonomy and knowledge in a very challenging economic climate, as well as bringing forward more productivity for both the immediate and long term.
It’s imperative, more than ever before, for SMEs to take advantage of technologies that streamline processes and add true value and savings to their business.