Dealing with the cost of Business Crisis

there is a cost of business crisis uh there is a cost of living crisis uh cost of living crisis is very much reported as it should be there's lots of discussion about helping out the sector and helping out households who are struggling there's less so though reported on the business sector and all the factors that are contributing to challenges to household budgets put to putting that squeeze on the finances etc tends to be ignored when it comes to businesses whatever size and complexity in this broadcast i'm going to look at the cost of business crisis i'm going to go through why it's happening understanding why it's happening helps us to deal with it we're going to be looking at some of the key components of costs that are presenting big challenges for businesses and more importantly what can we do as business owners to try and combat mitigate and deal with those challenges in front of us so folks before we do that it only seems right and proper that we have a little warm the blood music [Music] [Music] good morning good morning folks so my name is bermuda greta i am an accountant thank you very much i am also the founder of numbers know how my background is in accountancy education i'm also the proud author of the book i hate numbers which according to my opinion and many of those who read it is a must read for businesses it's not just about numbers but it's about ways to deal with and cope with all those different machinations and things that go on in our business the purpose of this particular broadcast as in all the content that i try to produce is help you and your business create more profits save money save time and tax reduce the battles that go on between your ears and make them such that you have more victories than you do have losses let's crack on with today's broadcast now if you're hopping on live thank you very much for your company if you're coming across this later on if you put in that hashtag replay if you have a comment to make you want something to contribute to this particular broadcast then please put those comments in put hashtag replay i always check the comments that come through and we'll respond to them accordingly now cost of living crisis is a term that's pretty much seeped into the uk vocabulary and it's something that affects the rest of the world here what's less publicized what's less talked about is what that impact is on businesses now in terms of anything that happens that's classified as a crisis uh there are ways to actually deal with that there are ways that we can cope with that and what i'm going to try and do through this broadcast here is to make the comments very practical and less of an academic framework i think it's worthwhile before we look at how do we deal with this here is to understand what is meant by this cost of business crisis what the contributing factors behind them have been and that way once we've got a better understanding of what's causing something it's always much easier as a business owner as a business to actually then come up with tactics to come up with a plan and an approach as to how to tackle it as well now cost of living crisis has come about and it's pretty much those same contributing factors that's impacted on businesses is that we have to go back and look over the last couple of years now in the last couple of years uh kovit is uh it's been an issue and it's had a massive impact on the world not just from a health perspective and how governments are treating it uh your views on on that are particularly not particularly pertinent on this comment but what we do know is it's caused businesses to shut down and the way i would look at it is if you imagine you have a car and you put it away in storage in a garage and you leave it alone for a couple of years and then you go back to it after a couple of years it's likely that car will not start first time round it's likely some parts and so components will have seized up it's likely that you might have to buy spare component parts to get that car functioning again it's likely that car will not be as efficient and ready to go as if it was in regular use and that is pretty much an overview a symbolic overview of what the economy has been like and what it's been like for businesses so imagine businesses that have had periods of shutdown and they say shut down or reduce certainly their activity more specifically in terms of what i call in person so if your business is not a work from home business what's happened is there's been less traffic less movement you've had issues with staff retention some staff would have gone off into different industries you've had a shutdown in demand and therefore what you've had to do is to take action accordingly now as the economy reawakens what happens is it's a bit like starting a car and it will take time for for things like supply chains to come back into full activity component costs such as energy have disproportionately gone up and it's not just because uh effectively of recent uh of war in ukraine that certainly be a contributing factor but in my opinion it's been just that economy reawakening and effectively all the elements that are in the full movement here from shipping costs distribution costs the acquisition of raw materials getting good quality labor all those have conspired to put pressures on inflation in the uk has just topped 10 in the last week or two and the reason for me to think about all those major events and if we do then factor in like the ball in ukraine even though the uk economy doesn't necessarily consume a lot of russian oil and gas those countries that do rely on it have had to go to other uh countries to actually obtain their supplies and therefore price pressures will increase also it's got to be remembered folks here that oil obviously we recognize it mostly for fuel for energy that we use it from but oil has a very very wide user base and it's used for multiple products here from health your smartphones from asphalt on the roads plastics and the like here so that cost pressure permeates through pretty much most things that we buy into now the reason for being aware of that is not to make any sort of political or business point here but it's to say all those events that have occurred have put cost pressures up there inflation has gone up accordingly inflation that measure of the movement of a basket of goods is it's likely to go up slightly more in my opinion but it's for me when i say transitory in the greater scheme of thing in the business world here uh in the greater things economies it's likely to last for about another year maybe a year and a half but you will then see those cost pressures relax a little bit when some degree of whatever it's called normality comes back to being those cost pressures will minimize the reduce energy costs are likely to reduce as well obviously i don't have a crystal ball in front of me but having been in business for over uh 27 plus years having been work involved in the world of business for about 40 years here i've seen you know a cycle of events that have occurred over the last uh 30 40 years here so in my humble opinion having seen it before you know things will change as time goes on as an economy as businesses we are used to those extremes those extreme pressure points here uh businesses do survive and not all businesses will be affected of the same magnitude now it's important to to know this because when we deal with any crisis and it's undeniable there is a cost of business crisis one factor alone energy costs certainly based on my own experience the experience of my clients here are factored in to go up by a magnitude of 400 to 500 for many businesses that are not work from home businesses those price increases have already taken effect and bills have gone up by a magnitude of 300 percent and their forecasts go up even more uh certainly coming up to wintertime that could be quite a pressure point there as well so energy which is a key component of many businesses you know we need electricity to power all the devices we have to heat our offices we're going to use them in our manufacturing processes so energy is a key major component here and later on this broadcast folks i'm going to focus particularly on energy and the things that we can do to deal with them but i want to present a framework of how we can cope with these big pressure on costs so understanding where we are is really vital before we take any action and it's not just for cost pressures here if you as a business owner understand where you are if you understand the issues and we're going to boil in a couple of other factors in a few moments here it's much easier than to deal with that the key thing in all these things here and i can remember going back a couple of years when kovid first kicked in and pretty much things hit the fan so to speak you know there was panic uh there was lots of people being uncertain and i remember very clearly when i started to do my own particular first lot of broadcast here that calm and resilience are your best friends so with that in mind any action that you take you've got to do certain things before you take any action those things you've got to do is to try as far as possible is to remain calm and not to panic making decisions on a panic making decisions when you haven't got good information to make those decisions on could be very catastrophic for your business i would certainly not recommend anybody uh to suddenly say right i'm going to do this i'm going to do this i'm going to do that anything of a major scale until you've actually evaluated what the impact will be you could stay calm as best you can and you've got to be resilient and the one key element of a practical tool that i would recommend whatever the circumstances we find our economic climate in is you must do a financial plan a financial planner financial route map where you look through the windscreen of your business is absolutely critical before we make any key decisions in our business a financial plan a financial story plan a cash flow plan if you like for me is a critical document whatever the state of your business whatever's going on in your business here it's if the landscape is relatively calm and it doesn't look too choppy and turbulent you do a financial plan if it looks very rosy and optimistic you do a financial plan if it's going to be clench your buttocks time and things are going to get a bit uh shall we say rocky so to speak in turbulent you do a financial plan if there's one thing i would recommend to any business art social enterprise whatever shape and size you are you must do a financial plan not to do one by the way in my opinion folks is irresponsible not just to yourself but to all those people who might rely on you for your survival and prosperity from your staff your suppliers your team so there for me it's a real critical document it's a real critical process to go through um later on in the comments i'll drop a couple links here by the way if you're interested just so you can actually have a look around and grab some extra resources by all means check out the i hate numbers uh website and numbers know how here and you'll see some tools and resources there that will be very useful for you so in terms of how we feel resilience is the absolutely key thing here we've got to remain optimistic and i'm not saying it's rosy out there but panic a fear anxiety will creep in and that will distort your decision making and that's not what you want when you're at the pivot of your business what else do we need to think about well we then need to think about what are the key constituent elements that are where those cost pressures are and they are typically energy costs and energy for me again i think it's going to have a bigger impact in terms of those businesses that don't work from home and the biggest reason is there is no energy cap so householders even though the cap has gone up in value there is no energy cap for businesses that do not work from home if you work from home it's your household you're going to get an energy cap and again i'm not saying you're going to be immune to any of those cost pressures but it's going to be less severe than for those people who've got venues manufacturing units premises uh even if they occupy service buildings uh i'm for myself my business is based in a in an office uh i've got a team of eight people that's based within the uh environment and therefore for me having energy having electricity coming to power that is going to have more of an impact for my business than it would be if i was working from home there is no cap and there's no sign at the moment of the government stepping in to actually support those businesses that are not working from home businesses so having said that what can we actually do so critically there's a few things we also need to remember and we have in our toolkit in our minds as well as a practical sense all the changes that we're looking to make okay we do not want to go slash and burn we do not want to go cup cost really nearly the two ways that we can do look at things is first of all look at the top number and that's obviously look at the pricing that you're charging your customers and your clients by all means it should be a natural thing anyhow that you should always do a price review to see whether your price that you're charging for your customers is where you want it to be you know whether you do it on a value for money proposition whether you're just on a cost recovery position but always reviewing pricing should be a natural part of your business cycle some businesses are just saying okay whatever the cost increases and pressures we're facing we're going to pass those on to our client base now that's fine if you can do that but that's going to have a detrimental effect potentially on your client base some of your customers may not be able to bear it some of your customers may not be able to afford to absorb those cost increases here and some of those customers might decide to go elsewhere remember every business that's operating is going to be interconnected whether you're b2b or b2c there's an interconnection of what you do and the behavior of your customer so by all means pricing is one of those things um many of our clients they're doing a mixture some will be absorbing some of that cost if not some of it will be absorbing some of it some of the pain is going to be shared but whatever you do you need to understand what the impact is going to be on your bottom line your cash flow and your ability to sustain that as well so pricing is certainly one angle the other angle is to then look at your cost base and before you do what i call a slash and burn and pretty much these are the same principles that would have been applied back in 2020 when effectively the pandemic took its hole and it basically tightened the noose around business activity is have a look at your cost base and before you start slashing and burning ask some general questions so as you explore your costs you're asking yourself what value does it contribute to my business so it's not just a question of switching supplies does it contribute to what's going on are there subscriptions that i'm paying out for that i can examine and look for what do they contribute to my business what do they contribute for my business do they support it do they save me time do they add to productivity do they make my life easier don't undervalue your own time so if you've got a device if you've got a piece of a software an application that actually cuts down the amount of time that you're spending the amount of time your team is spending you've got to factor that as a benefit against the actual cost now i'm going to then move on to other things in terms of the general thing about costs is for most costs there are two variables that you have to focus on first of all how much of that resource are you using that's one perspective and the second thing is what's the price that you're paying for each unit of that particular resource so let me give you an example now i'm going to focus for the for the latter part of this broadcast on energy costs so typically electricity and gas now if we look at electricity the cost of an electricity bill is made up in the main of three components component number one is the amount of electricity that's being consumed and typically certainly as far as the uk is concerned that consumption how much we're using is measured in kilowatt hours the next thing we have to consider is how much we as a business are paying to our electricity supplier for each kilowatt hour that's being consumed now average rates for small businesses certainly in the uk by the way an average business will consume in a year between 15 and 25 000 kilowatt hours of electricity for gas by the way is between 15 and 30 000 kilowatt hours the average tariff rate for a kilowatt of electricity is about 44 pence per each kilowatt hour so the the first building block part of your energy bill is typically how much energy you're using multiplied by the tariff rate that you've got peculiarly the sting in the tail also though you have what's called a flat rate standing charge so irrespective of how much energy you're consuming there will always be in the main what's called a standing charge element and again depending on who your suppliers are they typically will base the standing charge on a flat consumption and amount per kilowatt hour so that's the elements that you're looking at from a typical energy bill so as we go forward if we are going to make meaningful decisions here there are two variables that we're going to look at one is the rate for each kilowatt hour and the second thing is the amount that we're consuming now the way the energy industry the energy environment is it's going to be more difficult to perhaps negotiate and look at the tariff rate the amount per kilowatt hour and again that's the thing that's really dramatically gone up but what's within our control what's within our remit what we can actually do to have an impact is looking at reducing the consumption you know being energy efficient for one of a better term now here's my advice about some of the headline things that we can do to tackle the energy costs that we are facing option one you can always look in terms of what i call switching suppliers now when you are looking to switch suppliers take into account a supplier typically will want to bind you in for a long period of time and i've seen evidence and i've had it myself and clients of mine have had it as well where a supplier will typically say a contract for three years they will then express that three years is beneficial because it locks you against any uncertainty your those prices are fixed obviously if energy prices go down after a period of time you're locked into that rate that you're paying so what it comes down to is a degree of risk and you're measuring the risk and how much certainty you want in your planning now again it's a purely a personal preference i again think of a personal perspective that i think energy rates will start to move downwards after about a year and a half two years if not sooner i think personally speaking three years there's a longer landscape i have no inside information by the way to opec to any of the energy distribution companies and the supply companies here but that's my personal take on that however if you're a business that actually has got a risk appetite that's quite modest you don't want to face that risk of energy prices going up and up you may look to a longer term contract you may be somebody who's more relaxed with a shorter term contract but whatever you do here examine the clause the terms of the contract there are companies out there and your inbox by the way is likely to be flooded with people now from energy companies looking to encourage you to switch suppliers before you make that leap you need to make sure you do your due diligence you need to make sure you know what the nature of the contract is and it may be such that you might want to do your own homework as well so switching supplies is certainly one route number two is effectively you can do some what i call internal things to actually reduce the consumption now step one for me before you make any key decisions about what to do whether to replace things is to do what i call an energy audit now an energy audit you again you've got two options here you can either bring in somebody from outside and an expert somebody who's very used to doing energy audits and an energy audit typically involves looking at your building looking at your your setup looking at the equipment that you're using having a walk around looking at how the radiators are set up looking at any ventilation that you've got going on and examining their efficiency their age their condition and actually doing effectively an assessment of what's going on in terms of energy consumption within your own business environment obviously if you've got a number of disparate outlets here then that will extend beyond that the good news is folks if you check out and i'll leave some links later on after the broadcast there are some grants there are some fundings available whereby you can access some financial support to do an energy assessment and energy audit so i would certainly check out your local authority website i would check out hmrc site again i'll leave you a couple of links after the show is check out if there's any funding available and you may find it a good use of your time to bring in an expert to do that energy assessment that energy audit there's no harm in you doing a quick walkthrough yourself so go things and have a look in terms of uh your heating system your air conditioning system is it set up correctly if you've got it thermostatically controlled a one degree change in the thermostat has about an eight to ten percent impact on the consumption of energy you have as well you can do an assessment on the equipment its age its condition its energy consumption um are your are any things blocking the vents and all the rest of it therefore that's that appliance is going to work much harder so again a quick walkthrough a quick assessment is going to be really beneficial what else can we do well other things that we can also look at to actually have an impact on the energy consumption is the little things and for me i'm a big believer that little small steps that we take accumulate and compound to a big impact there as well so if you've got the mindset you look at something you think okay for example turning off lights uh logging off the computer brackets turning off the screens that will save some energy typically uh turning off the computer screen by the way will save you on average about 35 pounds per computer screen if you've got an office that's got to say about 10 screens and a lot of us have double screens these days so if you've got a typical office you've got eight personnel there each one's got a double screen that's 16 that's 400 pound saving that's 400 pounds over a year and think to yourself how much do you have to generate by way of sales to give yourself 400 pounds worth of profit typically if i imagine something such as a an office you might be actually have to generate for example a thousand pounds worth of sales in order to give yourself a 400 pound profit margin so whatever your relationship is remember you're looking at small steps that you can make more immediately which will compound and accumulate to an impact on your bottom line and that relieves some of the pressure cooker off your finances as well which is really what we're after behavior so again if you're if you've got a team uh encouraging them to think about ways to reduce energy so like turning off the lights when they're not needed again we might think well suddenly a light switch what does it do but again it accumulates now if you're looking to replace if you've got inefficient equipment again there are some grants there are some funding out there that will help you again check out the the your local authority website check out your let check out what funding is there available even if there isn't a funding uh what you've got to bear in mind is when you look to replace some items you must have what's called a business case for it so again investing something of several thousand pounds which is only going to save you a modest amount of money may not necessarily be the best use of that investment that best suits the resources so let's summarize what we've got so far so we're talking about energy we're talking about consumption we're talking about what we can do we need to do an audit and find out what's going on we have to look about how we're using that equipment how we're using those things in our office and our business environment can we be more efficient in terms of turning computer screens off turning lights off looking at the type of equipment we've got finding out the items that are consuming a large disproportionate amount of energy is about patterns of behavior becoming more disciplined making small changes here and there will accumulate to a big impact switching suppliers obviously is a very good thing fundamentally whatever we decide to do we need to have that financial plan that encapsulates and captures the route forward what i would certainly recommend is is do not wait for that business crisis to overtake you do not panic do maintain some resilience here as business owners you will see in your business life when things are very calm and very settled you'll see things when they hit the fan you'll see things times of prosperity business goes in cycles and we as business owners need to make sure we've got that tuned in we need to make sure we've got a good business route map we need to look ahead in our business we need to do a cash flow plan that reflects what's going on we can see the impact on our decision-making and we can make more meaningful decisions and we can lessen the anxiety that we're likely to be exposed to folks i hope you got some value from this short broadcast let me know what your thoughts are and what i would certainly say is i'll drop some links in to the notes at the end be resilient be calm deal with this business crisis um at this moment in time there doesn't look to be a great deal of government support coming out uh we talk about cutting taxes and all the rest of it but personally speaking that's going to make a marginal impact in terms of where the cost pressures actually are it's the cost that we need to face and we need to effectively make sure we address them not hide under that do they and not ignore them either we're going to take action we're going to be resilient and who knows the cavalry of business support may come and help us but in the meantime remember we are the masters of our own destiny so good luck folks and don't have nightmares as they would say [Music]

2022-08-23 01:49

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