It’s been a tough few years for business owners, with an economic crisis following hot on the heels of the pandemic. Many businesses were still not fully recovered from COVID when they were hit with high inflation and interest rates, energy costs, materials shortages, Brexit issues and a decline in sales.
We’ve just got past the 31 January tax payment deadline and many businesses will have struggled to pay HMRC. Tax on SEISS (Self Employed Income Support Scheme) grants was included for the tax year 2021/22 and the repayments on COVID Bounce Back Loans, whether for a six or ten year term, will likely have begun.
February is the month of St Valentine and at CRM, we want everyone to know just how much we love to help our clients with their tax conundrums and financial worries. We know that many businesses don’t feel too optimistic about 2023 and many may feel that their business will struggle to return to pre-pandemic successes.
2023 might look quite different to how business owners were picturing it but with some careful planning and analysis of the current situation, positive steps can be made.
How does rising interest rates affect business?
- A slow-down in demand for goods and services has an impact on income as people are more reluctant to make purchases on credit.
- Businesses are facing higher borrowing costs so profit margins become even tighter.
- Prices of goods and services from suppliers have increased so businesses are forced to raise prices to cover this.
What can be done to mitigate rising interest rates?
- Revisit your business plan to check if objectives are flexible enough to withstand the storm.
- Assess the type and level of business debt but be aware of the risks of overextension in borrowing. Rising interest rates hit companies with credit cards and loans hardest by reducing disposable income and increasing overheads. Businesses might also consider shorter-term loans but these are riskier.
- Businesses with income streams in foreign currencies can be affected by an increase in that currency value. The use of forward contracts can mitigate the risks of exchange rate differences.
- Suppliers and customers may have funding affected by interest rate changes, even if your business doesn’t. Fixing supply prices can mitigate the risk of suppliers raising prices to cover loan repayments but with inflation driving up the cost of manufacturing and distribution, be prepared for cost increases along the supply chain.
Business energy support
A new scheme to offer a discount on the wholesale price of electricity and gas will come into effect from 1 April 2023 and run until 31 March 2024. This replaces the current Energy Bill Relief Scheme which the Chancellor described as ‘unsustainably expensive’. Energy-intensive manufacturing businesses will receive a larger discount but all businesses with a non-domestic tariff are eligible for the support which will be automatically applied to energy bills.
Installing a smart meter and making sure your business is as energy efficient as possible will help to keep energy costs to a minimum. Find our useful tip here.
At CRM, we know that businesses are feeling the pinch financially and we are here to help – not just with accounting advice but with our long-standing business expertise and knowledge. Whether it’s tax, borrowing, interest rates, forecasting or cashflow issues, a problem shared is a problem halved. We are happy to share our experience and point you in a helpful direction, give us a call to share your concerns on 01865 379272.
