5 strategies to survive the rising cost of doing business

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The strategic moves accountants are making to support their businesses and clients into 2023.

Chief among AAT members’ concerns are rising overheads and increased costs from suppliers, not to mention mental health and the vexed question of whether or not to raise their own prices. Here are their methods to combat those pressures.

Strategy 1: Negotiation

Clare Elliott FMAAT is CFO of IT support company ILUX, and has noticed clients increasingly querying prices and delaying projects to save expenses.

“It’s hard to increase prices because we’re all in the same situation. Our clients are across a variety of sectors including healthcare, education, manufacturing and the service industries and they’re starting to feel the pinch,” she explains. “When we sell to clients, we’re getting pushback all the time. Before, clients would happily accept quotes, but now they’re scrutinising everything. More and more projects and software implementations are either being paused or delayed.”

Hayley Beckley FMAAT, client manager and team leader at Effective Accounting, has been having similar conversations with clients. She’s found explaining the underlying situation helps them understand.

“Our clients, who are mainly service-based contractors in the film and TV industries, as well as small businesses, on the whole seem to be doing well,” she says. “Currently, we charge monthly subscription fees and we have to be careful how we approach any price increases. We’re mindful of not pricing our services so much that it puts clients under strain. It’s about being sensitive to how it’s done. Sometimes it’s about having that conversation with clients and saying ‘we need to increase it to this much and you’re only paying this much, so let’s meet in the middle’.”

Strategy 2: Budgetary discipline

Sam Mitcham FMAAT, founder of SJCM Accountancy, says exercising greater discipline is the bedrock of good budgeting – across both business and personal spending.

“One of my new year tasks is to go through my bank statements and see if there are any non-essential standing orders or direct debits that can be cancelled – there are usually a few. I’ve done this a bit earlier this time, at the end of 2022. It’s so important to do, to take a deep dive into your spending.”

Andy Smith MAAT, founder of Abbeygate Accountancy, agrees, and takes a rigorous approach to doing so.

“On a personal level, we are in a fortunate position, but we are watching what we spend at home. We’ve just had our fifth child and we’ve made a lot of changes – we’re growing our own vegetables, buying second-hand items instead of new,” Smith says. “I often run courses for Ipswich-based charity Future Inclusion, and the main emphasis is on running your personal finances like a business. Knowing what your numbers are, what’s coming in and going out.”

Strategy 3: Avoiding a price trap

Ensuring your prices keep pace with the rest of the economy is a delicate task, and one made more difficult as clients feel the pinch.

Mitcham has found walking that line with clients requires a degree of subtlety.

“Many of my clients in the health and beauty industry are particularly struggling because people have less disposable income. These clients tend to develop good relationships with their customers who will often confide in them and tell them they’re having a hard time because of cost increases. It then makes it very difficult to then say, ‘Actually, this haircut is going to cost you £10 more.’

“I’m stuck in the same price increase trap. Do you put prices up to protect yourself because everything else is going up, or do you take the hit because you empathise with your clients?”

Developing strong relationships with her clients serves her well and helps when it comes to client management, although she warns it can be a hard balance to strike.

“I’m a small business, supporting other businesses and I like to communicate that, sharing worries. Although there needs to be a line between the two relationships sometimes, I think there are certain parts where actually a crossover can be quite healthy. Clients do appreciate the beauty in that.”

Strategy 4: Adjusting service levels

To become more efficient Mitcham has adopted a pragmatic approach.

“I look at what services I’m providing to clients to check if it’s still value for money and I balance it out. For example, I may have assigned some software to a client for £20 a month, but if they’re not using it, we cancel it. Yes, I will lose the mark-up, but then we switch to a service that makes me money elsewhere and is actually more beneficial to them.”

A word of caution from Smith, that tighter budgets do not mean lower quality services. “We’re having regular meetings with all clients to discuss concerns and provide extra help and support where needed.”

Ultimately, it’s about appreciating that these crises affect everyone to a greater or lesser extent. “We’re all in the same situation,” says Elliott.

Strategy 5: Managing mental health

Mental health among finance professionals has been hit hard by recent crises, and it’s critical that both members and their colleagues carefully manage theirs to ensure they are not under too much strain. According to Mitcham, Beckley, Smith and Elliott, there are two key principles to follow when it comes to mental health:

Stay on top of your own finances

“I do feel privileged that I fixed my mortgage last year, but it’s the energy costs that really concern me,” says Beckley. “Last year, I turned the heating on whenever I felt like it, but now I’ll either wear more layers or use the heating at a lower temperature. I use the ‘do I need it or want it’ approach now – it’s what my mum used to say.”

Look out for colleagues

“We have a lot of initiatives in place. We have a few staff members trained as mental health first aiders to help support colleagues and we also make use of trivial benefits. Trivial benefits can be anything up to the value of £50 and don’t count towards taxable income. Employees also have access to free, private dental, physio or optician appointments through a Bupa cash plan scheme,” says Smith.

The great rejuvenation

While circumstances have been, and continue to be, trying, there are some positive signs emerging.

Research for AAT’s small business website Informi.co.uk has found that 64% of the UK’s Generation Z (16-25 years old) workers have either started their own business or aspire to do so in 2023 – compared to nearly a third of people overall. The findings show that being their own boss and quitting to start a business are top of the agenda for Gen Z, with 20% stating that they want to start their own business so they have something of their own, followed by 16% wanting to be their own boss and 10% feeling trapped in their job.

Despite this, nearly one in 10 (9%) people are put off starting a business by tax and accounting, and one in five (20%) don’t think accountancy skills are important to start a business.

Additional research by AAT with 500 small business owners in the UK revealed that the top three mistakes when starting a business are poor understanding of the target market (30%), cash flow management (19%) and ignoring technology (19%).

The research also found that some 93% of people starting their own business made mistakes and that approximately 16% missed a tax deadline. On average, the research found, small business owners didn’t hire a qualified accountant until just over a year into operating.

Green & Black’s co-founder Jo Fairley was not surprised by the findings and offered words of encouragement. “Don’t be scared to start a business in a recession: Green & Black’s was born in one, and it taught me some important lessons about always being lean and hungry, agile and adaptable, and above all, not wasting money, which has stuck with me ever since,” she said.

To help those considering starting a business, Informi has launched a new version of its ebook, How to Start a Business in 20 Days.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.

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