Lloyds Bank: Navigating rising inflation and business costs

Author - Charlotte Johns

Date published:

Just as consumers are feeling the pinch, businesses are dealing with increasing overhead costs. The implication for owners, entrepreneurs, and business managers is wider ranging. Still, there are solutions which can beat, reduce or even use inflation to advantage.

The inflation challenge

According to recent work by the CBI (Confederation of British Industry), average costs in UK manufacturing grew by 87% in the three months to April 2022, the fastest rate since July 1975. Some of the rises are related to the post-pandemic bounce back. Yet the need to keep the lid on expenditure can hardly be questioned.

With higher inflation, it’s harder to plan, prepare budgets, price products appropriately, and control in-put costs. Investment is more risky and employment costs more complicated.

Follow the money

Since all businesses are different, the best general guidance on costs is to follow the money. What are the biggest costs of running your business? It’s probably best to go after the big numbers first: a small change to a big number may be more significant than a big change to a small number.

A written checklist, such as the one below, might make a good starting point.

• Property

• Wages

• Input costs

• Heating and lighting

• Financing

• Admin and marketing

That said, no cost is too small to save and concerted efforts to make many little changes may be as effective as trying to find savings in the larger input cost factors. 

Unify and magnify

An integrated costs strategy might be the best way forward, a strategy which actively brings financial and sustainability imperatives together to magnify impact.

For example, you might look for office or production space that is smaller. Rent and fuel costs are both likely to be cheaper.

Because you’ll need less space, similar benefits will come with a balanced approach to employees’ in-office time with working from home. That may feed job satisfaction and productivity which, in turn, helps ‘pay for’ inflation-linked wage agreements.

Spend and save

It may be appropriate to invest in the short term to reap long-run benefits. Replacing office appliances with super-efficient models, for instance. You might think about solar panels, LED lights and insulation. You may expect upfront costs to be recouped in low bills and price predictability. Yet the environmental benefit is justification of its own.

Buying raw material, production capacity, and supplies in bulk may also pay off. But be sure to remember the potential pitfalls. The raw material may degrade or become obsolete. There are storage, working capital and financing implications as well.

‘Green’ incentives

An additional option might be to introduce ‘green’ incentives for staff to implement savings. For example, your company could donate a portion of any cost savings to a sustainability programme such as tree and hedgerow planting.

The immediacy of posting weekly or monthly cost savings scores might work well. It will also underline the usefulness of visible metering. Measurement and management are often inextricably linked.

Such incentives may give heft to small savings that, in total, have a larger impact. Good habits, hopefully, will become second nature and make employees feel better as well as saving the business money.

Value for money

Cost and waste reductions are almost always possible. Still, there may be hard choices to make about which savings are really worthwhile. If you cut too many corners you may encounter issues around the continuing health of top line sales figures. Ultimately, it’s about achieving full value for money – for your business internally and for your customers.

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