If you're a business owner, then you know that the cost of doing business is always on your mind. But what do you do when that cost suddenly skyrockets? Whether it's an increase in rent, wages, or material costs, a sudden spike can be disastrous for your bottom line. Here are a few tips to help you weather the storm.

"Losing your head in a crisis is a good way to become the crisis." C.J. Redwine

Not as much media time, comments through social media, or sympathy, but there is a real cost of business crisis - and not just a cost of living one.

Expect an intensification of 'clench your buttocks', WTF, as the costs of doing business will continue to build and it will feel like a kick in the financial balls. Ouch and wince!

There is no energy cap for businesses, and the eye-watering increases faced by individuals is eye gouging for businesses.

In this podcast I specifically look at how to reduce and manage your energy costs.

For example, businesses that are not work from home ones (of which a gazillion exist, including mine) are facing up to a five fold increase in energy costs.

Support is out there in how deal with energy costs.  However, that may feel like wearing a balaclava as someone hits you with a financial baseball bat.

Dealing with a cost of business of crisis

This episode provides more protection than a balaclava.

 "When everything around you is crazy, it is ingenious to stay calm" - Mehmet Murat ildan

At the risk of understatement, a ton load of businesses are experiencing crappy times, a cost of business crisis - that order of toilet paper will need to be increased.

Unfortunately, the rubbishy times are not unique to business, (Financial Crash 2008 anyone?) though the circumstances may be.

What I do know is that the best way to deal with rubbish times, is

Firstly, attitude and approach - panic is not your friend

Secondly, assessment - don't rely on guesswork

Thirdly, options, there are always options

Fourthly, Financial-Cash flow Plan, you should be doing this anyway

Lastly, Take action - inertia doesn't solve anything

Conclusion

So what does this all mean for business owners? We’re in the midst of a cost of living crisis and it’s impacting businesses in a big way. The good news is that there are things we can do to navigate our way through this very choppy and turbulent storm. In this podcast, I’ve outlined as best I could what a cost of business crisis is, how we should approach it and how we should deal with it.

My gift to you, a free Numbers Know How Cash Flow Guide.   Check out my I Hate Numbers YouTube channel,  Subscribe to I Hate Numbers now so you don’t miss an episode.  My book, I Hate Numbers will change your relationship with numbers and money, in a good way.  Check out what people have said, buy the book and make your own mind up, you won’t be disappointed.

There is what has been termed a cost of living crisis, not just in the United Kingdom, but all over the world. The cost of living crisis is something that also has spilled over and is impacting the business sector in a big, big way. In this podcast, I'm going to give of an outline as to what a cost of business crisis is, how we should approach it and how we should deal with it, and the things we can do to navigate our way through a very choppy and turbulent storm as business owners.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode of I Hate Numbers. This is the podcast that's got a mission to help you and your business make more money, save time, increase your financial awareness, and help you win more than you lose those battles that goes on between your ears. Let's crack on with the podcast. Cost of living crisis, as it's been dubbed - there are a number of contributory factors that have created big pressures on a huge number of households up and down the UK and also across the world. A combination of those factors have made dealing with the financial future very problematic, creating some anxiety, and people are really scratching their heads as to how they're going to navigate their path through.

Those same circumstances have also rippled across naturally, as one would expect, across the business sector. I think before we look at how we deal with them, what we need to do, how we navigate our paths here, there's a few things that we need to remember. Number one, when any crisis, when any panic happens, going back as far as 2008 and even before that, what we have to remember is that it doesn't affect everybody in the same way. What might be a crisis for one group of individuals, for one business, may present an opportunity for others. So when we look at a situation, we've got to understand it first of all and think how it affects us directly.

Let me talk through the contributing factors behind a cost of business crisis. This is a crisis that has been underreported. It's perfectly understandable and there's a focus on domestic households, on families, on individuals. But it'd be wrong to ignore the impact on the business sector. And businesses in the main, have much less protection against the raging forces of cost increases and the component parts. Understanding what's caused and created this situation helps us deal with what lies ahead. Now, the contributing factors behind the cost of business crisis either rising energy prices, rising cost of delivery, utilities, raw materials, cost of employing staff and freelancers has been due to a combination of increase in energy costs. And this can be traced back, in my opinion, back to when the world shut down a couple of years ago, back in 2020, when the COVID-19, the action that was taken to deal with that was largely resulting in a huge number of businesses and economic activities slowing down.

Now, whether the rights and wrongs of that particular situation, let's just deal with what effect that actually has. As the economy slowed down, as businesses shut down, more specifically, those businesses that had premises, so venues, pubs, hospitality places, any place that had an office or a manufacturing base or anything where people congregated, there was a change in the patterns of work, there was a change in what happened. Airline companies, aviation companies, oil companies even, they all face a period of slowing down activity, shutting the doors to some extent. And what that meant was, as those levers were pulled, as economic slowdowns happened, it has a ripple effect.

Now, if we fast forward as the world is opening up again, it's a bit like having a car that you've left in your garage for a couple of years. It's been unattended, relatively speaking, when it comes time to start it up again, it may be that the engine seized up, it may be that you've got to get replacement parts for that vehicle and it's going to take time, tender love and care before that car is fully functional. Imagine the economy, imagine your business as that car is going to take time to invigorate and go back to some degree of normal operations. What that means is that slowdown, that reawakening has created havoc on supply chains.

The cost of getting materials from all over the world, and we are an interconnected country, all countries rely on other countries for imports, they export there and the cost of shipping has gone up dramatically. The cost of energy has gone up dramatically. The war in the Ukraine, oil supplies and gas supplies are restricted meant that countries have to go for alternative sources. That means there's still the demand that's increasing, but there's less supply out there and prices go up. So all those elements from the cost of shipping, the cost of materials and the cost of energy have all contributed to a perfect storm. Now, before we look at some practical tips about particularly has to deal with one of the components in their energy costs, which in my opinion is going to dramatically impact those businesses, specifically those not working from home, let's think in terms of what needs to happen.

Now, before any fiscal action needs to be taken. We need to think about our own mindset, our own position, our own behaviours. And critically, the best way to deal with any situation where there's likely to be a high amount of stuff thrown at the fan, things that are very turbulent, very crappy, is to have the right mindset. You need to calibrate your mindset to one of calm. I'm not saying these aren't anxious times here, but panic doesn't solve anything. You need to have a calm demeanour. You need to have a huge degree of business resilience. And that business resilience is something that many business owners exhibited in spades back in 2020. And also if we go back a bit further to the financial crash back in 2008, resilience is necessary.

We may not be able to change what goes on around us, but we can certainly change how we react and how we deal with those situations. So a calmness of demeanour, not to panic, panic will be nobody's friend, to have that element of business resilience built in and develop it is going to serve us very well. The next thing we need to do is assessment. We cannot take action, we cannot come up with a plan, we cannot try and resolve a situation unless we fully understand what's going on. If we take the example of energy, and energy costs are forecast to hike up as much as 400, 500%, you may think it's going to have more dramatic impact in October, and it certainly will when the winter sets in, but also to run our appliances, to run our businesses, to run our offices. Energy is consumed currently, so we need to think about the here and now.

Before we look at the options for that itself, we need to understand where we are. So typically, if energy is a key component cost for you, if it's likely to be hyped up quite dramatically against you, then you need to assess what's going on. And assessing the situation during a diagnostic, during an audit, evaluating where you are is going to be absolutely critical. If we extend that to the wider sphere, understanding what your cost base is, understanding where those commitments and resources are allocated, is going to be vital before you come up with any action.

Look at options. There are always options for us to do anything. If we're looking at trying to minimise our costs, if we're trying to effectively make sure that our cash goes much further, then it's essential that you understand there are always options. And if we take the example of costs, costs, you can dramatically reduce them by cutting them out completely. But you've got to think about what the impact on your business is. Are there options to make things more productive, more efficient? Again, there may be an investment that's required from us in terms of time and energy. Options: can we slow down our business activity? Options: can we consider putting prices up to our customers? All the options that are in front of us here are going to come about once we've understood what's going on, once we've made an assessment, once we decide the business that we want to have going forward.

This time will pass. And understanding the background. What we always know through history is things get tough, it goes in cycles. But there's always an end that's reached. It might be a year, might be a year and a half in the future, but it will not be forever. Critically, the next key thing we need to have about saving it should be something we should be doing anyhow, is to have a financial cash plan. Even if things are positive, you should have a cash flow plan and you need to create a financial story plan based on the decisions you're likely to be making, where your business is going, the cost pressures, the revenue pressures, the revenue income, all of that needs to be translated into a financial plan.

As a heads up, folks, if you check out the show notes, I'll put a link in there through some resources and also to the Numbers Know How financial planning. Really important here, that we have a cash flow plan that tells us where our money is going, it tells us where the pressure points are, it tells us how long we can weather the storm, whether we need to inject more funds, where we need to make those decisions. And if you don't have a financial route map, if you don't have a financial plan, you're largely groping in the dark with a blindfold great image that would encapsulate.

And the last thing we've got to do is to take action. It's all very well understanding, analysing and evaluating. It's all very well seeing the options we have. It's all very well producing a financial plan, but if we don't do something, if we don't take action, then we're going to be no further forward. Inertia doesn't solve anything. Now, folks, before we conclude with this podcast, I want to just comment a little bit about energy costs. Energy costs for most businesses study in the UK, there is no protection, there is no cap. There are a number of things that we can do to try and reduce and manage our energy costs more efficiently. Number one is to understand what's going on at the moment.

Do an audit, do an assessment. There are government schemes out there, there are local authority schemes out there which provide funding for firms to do an energy audit. Understand which appliances, which part of your set up in your offices, in your building and your manufacturing unit. Where does the energy actually get consumed? How efficient are the items in there? What sort of consumption are we looking at? Are they in bad condition? Is the ventilation up to where it should be? Is there any sort of leakage of energy? Are we using the energy in the most efficient way? And doing an energy audit is an essential first step. If you find that you can't access any funding and I'll leave a link in the show notes to some suggested areas to look at, then you can do a walkthrough, you can see what's going on, understand what's going on, and if you understand your energy journey, the energy that's being consumed, then you can make those decisions much more easily.

Once we understand where the energy is being consumed, typically in the UK, businesses tend to consume, small businesses tend to consume anything between 15 to 30,000 kilowatt hours. The average tariff price is 44 pence. So where we can make opportunities for perhaps turning off locking off our computer screens, please check with your IT department making sure that we turn off those light switches that are unnecessary, perhaps investing in solar panels, in light switches that reduce the energy usage at certain times. This is an ideal time to think about managing your energy more efficiently. When costs are quite low, we don't have the incentive necessarily to actually think about the most efficient usage.

The key areas where businesses can do something, by the way, is more on the consumption as opposed to the tariffs. Certainly with tariffs you can look to switch contracts, go for new suppliers, you need to take on board though that your element of risk, whether you want to go into a three year term, a two year term, or whether you want to go for a one year term. So shop around, by all means. I anticipate there won't be a dramatic thing you can do on the tariffs. It's the consumption that you need to think about. Having done that, having done your energy audit, having decided where the energy is being consumed across appliances, across items in your business, whether it's the heating, the air ventilation, the lighting system, the manufacturing setup, then you can make decisions. If you are going to acquire new equipment, something that's more up to date, doesn't consume as much energy, then you need to do a business case for it.

And a business case largely will be thinking in terms of the money you invest now, the time that you're going to save, the energy you're going to save and what that will be. And that will certainly make it much more robust into the future. So, folks, I hope you found this podcast useful. It's scary times out there, but it's really essential that we as business owners certainly, take a breath, stay calm, don't panic. A panic will shoot nobody. Be resilient, assess, find out what's going on, understand your situation, come up with the options that you need, produce a financial plan - absolutely essential to do that and take action.

Check out the show notes and I'll give you some links to some resources and I would encourage all of you to check out the Numbers Know How financial planning community. Our intention is to build a financial story planning community here. Well, not only are we going to provide a fantastic product to do your financial plans in, but also resources, a community, knowledge and learning all around the idea of financial storytelling. I hope you got some value from this podcast and if you have, I'd love it if you could leave some love, leave some comments, subscribe share it with your friends. There's lots that I'm asking of you. If you do one thing, leave a comment, leave some feedback, and until next week, folks, don't panic and I'll see you next week.

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