By Mike Elliff, below, CEO of Tyl by NatWest
UK small businesses are now grappling with a new nemesis: the impact of surging inflation rates and the alarming rise of the cost of living. It’s hard to pick up a newspaper, switch on the TV, or scroll through social media without being overwhelmed with bleak messages about the cost-of-living crisis.
It’s therefore no surprise that consumer confidence has hit a record low as people rein in their spending habits and tighten their wallets. The Deloitte Consumer Tracker reveals UK consumer confidence fell by three percentage points in Q2 2022, reaching a historic low of -19% and below the previous record set during the lockdown of March 2020. Small business owners are left to handle the spiralling knock-on effects of rising energy bills and significant financial pressures.
How can they best continue to grow and thrive while responding to changing consumer priorities?
The challenge ahead
A OnePoll survey reveals that three quarters of small businesses (78%) see the cost-of-living crisis as the biggest threat to their survival in the next year. With the UK inflation rate rising to a 40 year high of 10.1% in August 2022, financial experts say the situation will worsen before it gets better.
Research from Tyl by NatWest conducted with Censuswide in October 2021 found that small businesses were already struggling to keep up with their rising energy bills a year ago. More than half (54%) were spending at least £3,000 annually, and undoubtedly even more now given the surge in energy prices since then. In addition, the majority (70%) of small business owners believe that their company’s ability to grow has been impacted by rising energy bills.
Unfortunately, there is no immediate respite from rising costs. A low growth, high inflation economy isn’t what small businesses need following a two-year pandemic – and many are battening down the hatches as they switch to survival mode.
Despite these hardships, there are steps small businesses can take to future proof themselves and plot a plan to weather the storm of uncertainty.
Selling the benefits of keeping it local
Small businesses are often considered the cornerstones of local communities. When our lives were upended and our worlds shrunk during lockdowns, many of us depended on local shops and businesses who provided a vital lifeline of services under difficult and uncertain trading conditions.
This loyalty goes both ways, and it will continue to play an important role even as price increases continue to bite. Our research from March this year found that, despite concerns over price, 73% of shoppers say they want to support their local community or high street with their shopping habits.
However, we found that 45% of businesses don’t advertise the fact that they are local, potentially missing any easy opportunity to remind their communities that they are in this together. Small businesses should embrace marketing as a top priority to capture the interests of local shoppers, building a robust relationship between their customers and their brand.
Paying it forward
To also encourage repeat visits, businesses should consider developing charitable programmes. With every card transaction Tyl merchants take, Tyl donates a portion of the revenue to the Giveback Community Fund, increasing the impact businesses can make in local communities. By partnering with Tyl for their payments needs, businesses are automatically signed up to the Tyl Giveback Community Fund, which enables them to support charitable organisations instantly and removes any additional admin or costs to the business. To date, the fund has raised £400,000 to support charities like Prince’s Trust, Hospice UK and Macmillan Cancer Support.
Investing in the future
While it’s understandable that small businesses need to concentrate on the challenges of today, that doesn’t mean they shouldn’t be on the lookout for business management and revenue generating opportunities, particularly in a climate of increased competition.
Investing in virtual terminals and using business analytics is a useful way for business owners to maintain oversight over sales, payments, and inventory, often keeping track of everything in one place and at the same time. Features such as the Tyl Portal help by crunching the numbers, making it easier for businesses to keep track of transactions, invoices, settlement history and find out when the busiest times are all at the same time. Such insights are invaluable when it comes to developing a more robust business and gaining an understanding of issues such as staff numbers and what products are flying off the shelves, and therefore ultimately helping businesses stay afloat and remain profitable. What’s more, with the democratisation of data, SME owners are in a strong position to better analyse their business performance, devising strategies to drive growth and avoid unnecessary expenditure.
Enhancing the customer experience
Small businesses must ensure they are offering a convenient service and cater to the preferences of consumers, no matter what their size. Businesses should look to simplify the customer experience as much as possible. This could include offering a range of payment options that speed up transaction times or ensuring stores, whether bricks and mortar or online, are easy to navigate.
The pandemic may have seen a boom in SMEs and side hustles, but it also saw a radical shift in how many people shop, resulting in a proliferation of new mobile services and delivery apps. Consumers increasingly want their services to come to them, not the other way around. However, only a quarter of small businesses say they will invest in a mobile premise – potentially missing an opportunity to get closer to their customers.
For time pressured business owners, the speed of newer forms of payment is a huge benefit for those who are often wearing a few hats at once. Card and contactless payments further increase efficiency through the automated data entry, removing the need to enter your data into your accounting software, which has the additional benefit of cutting out any human error. Late payments can also have a detrimental effect on small businesses, with almost half (44%) of SMEs saying that late payments cause cashflow issues. Platforms like Payit by Natwest, provide businesses and customers with open banking technology to collect and send payments at the click of a button, removing the need for sharing and storing card details. For businesses collecting payments, the customer journey is sped up, allowing for quick and easy payments. If businesses are sending payments or refunds, funds can be instantly settled, reducing the need for bank transfers and cheque issuance.
Embracing such technology can help small businesses streamline their day-today processes so they can focus their attention where it’s needed: their customers. In between supply issues, labour shortages, and low consumer confidence, the right technology can help control stock, manage people efficiently, and help maintain a positive cashflow.
Rising living costs present considerable challenges for households and businesses alike. While there is no silver bullet solution, small businesses can be flexible enough to adapt to the challenges while exploring new opportunities and more efficient ways of working.