Joe Phelan, money.co.uk business savings expert says: 3i1p62
“With inflationary pressures showing no sign of easing, the UK’s small businesses are recognising the need to act if they’re to protect their margins and strengthen their financial resilience.
As we move through 2025, small businesses across the UK are facing mounting cost pressures. Recent data shows that more than half of small businesses[1] expect costs to rise significantly in the coming months, with many feeling unprepared for the impact. For many business owners, this is a critical moment to reassess financial strategies and build resilience for whatever lies ahead.
Cost increases aren’t just about higher supplier invoices; they create a cascade effect throughout your business. When raw materials cost more, profit margins shrink – unless, of course, you can costs to customers. When energy bills rise, so too will your overheads. When international suppliers raise prices due to currency fluctuations or trade uncertainties, your entire cost structure is likely to shift.
The businesses set to struggle most will be those caught off-guard, and those without the financial flexibility to absorb temporary increases or the strategic planning to adapt their pricing models. The key is moving from reactive to proactive financial management.
With that in mind, here are some key strategic approaches that’ll ensure you’re ready for whatever comes next:
Evaluate cost management and forecasting 5r32u
One of the most damaging misconceptions is that the impacts of cost increases are completely beyond your control. While you can’t control market prices, you can control how prepared you are for them.
Many businesses struggle to accurately predict their true costs when pricing products or services. It’s not just about spreadsheets – it’s about deeply understanding your business model to stay profitable as conditions evolve.
Business owners should build cost inflation into their pricing strategy from the start, rather than scrambling to adjust after costs have already risen. This means routinely reviewing and adjusting finances so you have the agility to stay ahead of cost pressures.
Bolster supplier relationships 2t1915
Relationships with suppliers can make or break your ability to manage rising costs effectively. The goal isn’t just to find the cheapest option, but to create partnerships that provide stability and flexibility when market conditions change.
Diversifying your supplier base will mean you aren’t dependent on single sources and could give you a little more negotiating power. Exploring domestic alternatives could reduce currency risk and shipping costs, while building relationships with suppliers who view you as a partner — rather than simply another customer — might pay dividends when times get tough.
Enhance your cash position 58605w
Cash flow challenges affect nearly half of all small businesses,[1] but this isn’t an inevitable part of being a business owner. Strong cash management can give you options if (and inevitably when) costs rise.
Immediate actions you can take include opening a dedicated business savings to separate emergency funds from operating cash, reviewing your invoicing processes to reduce the time between delivery and payment, and considering invoice finance for immediate cash flow if you have reliable customers with longer payment cycles.
Secure flexible credit (before you need it) 3w6x1a
Lenders are likely to scrutinise applications more carefully when businesses appear financially stressed. Establishing credit facilities during stable trading periods gives you stronger negotiating power and access to better rates, as you’ll meet lending criteria more easily and can shop around.
Business credit cards can help you manage short-term cash flow gaps while earning rewards on regular purchases. Business loans can bridge larger cash flow gaps or fund planned investments. Asset-based lending can be particularly useful if you have equipment, property, or inventory, often offering better rates due to the reduced risk for lenders.
Deploy technology to offset rising costs 3q61v
The rapid adoption of AI tools represents a genuine opportunity to offset rising costs through improved efficiency. A study by the University of St Andrews Business School[2] recently concluded that SMEs using AI tools could achieve productivity gains of between 27% and 133%, which could directly translate to better profit margins.
High-impact, low-cost AI applications include automated bookkeeping and expense tracking, customer service chatbots, and inventory management systems. The key is starting small and focusing on areas where automation can deliver immediate, measurable benefits to your bottom line.
Your next steps: A practical approach 6w2t1n
The difference between businesses that thrive and those that merely survive often comes down to taking action before problems become crises.
Start by conducting a complete financial health audit. Review your cash flow patterns, assess your available credit options, and evaluate how accurate your cost forecasting has been. Identify your biggest financial vulnerabilities and create specific action plans for each area that needs improvement.
The economic pressures facing small businesses today are real, but they don’t have to be insurmountable. The businesses that emerge stronger will likely be those that use this challenging period to build better financial foundations, more efficient operations, and stronger strategic positions.
By taking control of your financial planning now, you’re not just preparing for rising costs, you’re building the resilience and flexibility that will serve your business for years to come.”
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