Third party costs topped the list of concerns as nine in ten small businesses are worried about the cost-of-living impacts

Thursday 17th November 2022

Nine in ten British small business owners are concerned about the impact of the cost-of-living crisis on their enterprise (92%), peaking for those businesses in retail (97%) and hospitality (98%). Rising third-party costs (73%), energy and rent price rises (63%) and customers reigning in spending (58%) were the top concerns.

At a time when inflation has hit a 40-year high[1], Novuna Business Finance surveyed a representative sample of 2,000 small business owners and asked which aspects of the increasing cost-of-living crisis threatened their business the most.

Businesses unable to pass on rising costs

The biggest concern across all most industry sectors was how rising costs could be absorbed by the business (73%). There was evidence of small businesses facing a price squeeze on inflation. Nationally, 49% were concerned about their suppliers putting up their prices as a result of rising inflation. This was significant because 38% of small businesses felt they, in turn, would be unable to pass on higher inflation-adjusted prices to their own customers (38%).

Businesses in manufacturing (65%), retail (65%) and construction (62%) were most concerned by costs being passed on by their suppliers (vs 49% national average), whereas businesses in hospitality and leisure were those most concerned about not being able to pass on inflationary costs to their customers (52% vs 38% national average).

A key issue arising for small businesses from the cost-of-living crisis is how many are being hit by higher prices, whilst also being unable to pass them on to themselves, leaving many to cover the costs alone. Small firms in the North East and West Midlands were most likely to experience this, with more than half of these businesses being hit by rising costs by their suppliers (54% and 53% respectively) but only a third feeling able to pass these increases onto their clientele (35% for both regions).

Rising energy costs are a worry for more than half of businesses

Despite heating homes and filling up their cars being the topic on the nations lips this winter, the research highlighted the widespread concern over energy costs associated with running their business as usual – and how this concern trumps that of travel costs. Overall, Half of businesses were worried about energy costs impacting their businesses running as usual (52%) and a third were concerned that rising energy costs would impact travel and transport (36%).

These numbers skyrocketed when it came to manufacturing and hospitality, with almost three quarters of small businesses in manufacturing concerned about rising energy costs impacting the running of their business (71%), and two thirds of those in hospitality (66%).

Interestingly, businesses who claim to be ‘carbon neutral’ were less concerned (40%) about rising energy prices than those who have taken small steps towards carbon neutrality (56%) and those who do not see the need for a carbon neutrality plan (56%).

Waning customer confidence sounds alarm bells

Despite winter being the season most known for increased spend, in preparation for the Christmas period, more than half of small businesses (58%) were concerned that this winter will be less profitable than those prior, with a third worried about decreased customer volume (36%) and almost half concerned about decreased spend (46%).

Seasonal small businesses were most concerned, with a third worried that the Christmas period would be quieter than usual (32% vs 17% national average) and therefore bring in less custom (45% vs 36% national average).

A third frustrated with government leadership

With political and economic uncertainty rife, Novuna’s research reveals that more than two thirds of small businesses are concerned about the governments lack of support and political leadership (35%). This figure rose for those in the North East (44%) and Scotland (40%), along with those businesses in hospitality and leisure (45%).

Small businesses top concerns on the impacts of cost-of-living on their business

Rising third-party costs (Net)

73%

Being hit by rising costs/charges from my suppliers

49%

Not being able to pass on inflationary prices increases to my customers /clients

38%

Cash flow becoming more volatile

29%

Rise in late / non payment

20%

Rising energy costs (Net)

63%

Rising fixed costs - rents/ business rates

21%

Rising energy costs - in terms of running the business

52%

Rising energy costs - impact on transport & travel

36%

Waning consumer confidence (net)

58%

Less customer volume

36%

Customers spending less money with us

46%

The prospect of a quieter period for Christmas trading this year

16%

Lack of political leadership and support (Net)

35%

Lack of political leadership

27%

Lack of government support

24%

Staffing concerns (Net)

30%

Not being able to pay staff more in keeping with cost of living costs

27%

Not being able to hang on to staff

10%

Cost of finance concerns (Net)

17%

Rising cost of finance with interest rates

13%

Banks being restrictive on lending money

9%

It is no doubt that with the current political and economic climate, small businesses have had a tough few months. The data shows the sheer number of businesses who are worried about the impact of the cost-of-living crisis, with their main concern being having to shoulder the rising costs alone, unable to pass onto their customers. This gap is likely going to get wider, with businesses keen to invite custom in the Christmas period and being forced to keep costs competitive to achieve this.

Despite more bumps in the road expected, we have seen time and time again the resilience and nimbleness of the small business community. At Novuna Business Finance, we work with the small business community through the good and the bad, helping to create a vision for the future and to navigate any obstacles that may be thrown their way.

Jo Morris

Head of Insight

Novuna Business Finance

[1] https://www.ft.com/content/dec290b0-dc52-4486-81c7-2173188e281b

Note to editors

The research was conducted by YouGov among a representative sample of 1,201 small business decision makers during the first week of July 2022, spanning all key industry sectors.