Top 10 impacts of inflation on small businesses

• Research reveals the most concerning knock-on effects of inflation on SMEs, ahead of the inflation rate announcement on 19th October.
• Topping the list: a third of small business owners have increased their prices. This is followed by a quarter who have had to use their own personal savings, and nearly 1 in 5 who have stopped paying themselves a salary.
• Some small business owners are dipping into their pension pots (6%) and using their inheritance (5%) to tackle inflation.

Over a third of small business owners (34%) owners have had to increase customer costs as they grapple with inflation, according to our new research.

Having to raise prices is the top impact of inflation on small businesses – with the number of SMEs doing so increasing since December 2021 (from 26%).

This is followed by SME owners having to dip into their pockets to bolster their businesses; over a quarter are using their own personal savings to help their companies survive inflation. This is followed by one in five who say they had to stop paying themselves a salary.

The new data shows inflation is impacting an increasing number of small businesses: in December 2021, 41% of SMEs said the rising inflation rate wasn’t affecting their business. Now, only 17% say they’re unaffected by it.

SME owners use savings, pension pots and inheritance money to prop up businesses

Using savings is third on the list (as above), but in 8th and 9th position there are even some business owners using retirement and inheritance money to survive inflation; one in twenty SMEs (5%) are having to use their inheritance as inflation rises, and similar amounts (6%) are turning to their pension pots.

Cory Greenhough, Managing Director of an online commercial refrigeration and catering equipment company, Fridge Freezer Director, said: It’s really sad to think, but at this current rate, I think in a year's time a lot of businesses – say your local gastropub in the country – won’t have survived this energy crisis. A retail customer spoke to me the other day about how his energy bills have gone through the roof. We sold him an open-fronted fridge (where consumers can grab-and-go drinks and sandwiches etc.). They’re not particularly big pieces of equipment – his was about 1.5 metres. It’s currently costing him £10 a day to run these, per unit. He has two. So that’s about £600 a month just to run two small chillers. That’s before anything else – switching his lights on, paying his staff, his rent, his business rates – all of the rest of it.

In the past people have just thought about the cost of the piece of equipment, not the electricity they’ll need to run it. So now we’re now trying to educate customers about the most energy-efficient products they can buy.”

Top 10 SME Inflation Impacts

1. Increasing costs for their customers (34%)
2. Using their own personal savings (26%)
3. Stopping paying themselves a salary (18%)
4. Not being able to focus on growing their business due to increased operating costs (15%)
5. Not being able to afford supplies (14%)
6. Applying for a small business loan (10%)
7. Borrowing money from friends/ family for their business (8%)
8. Dipping into their pensions pot (6%)
9. Using their inheritance (5%)
10. Closing their business temporarily (4%)

Seema Desai, COO at iwoca said: “Our data shows that one third of SMEs have raised their prices and over a quarter are having to touch their savings. The support which the Government has promised is much needed to help prevent small business closures.”

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Data (full list)

What impact has the rising inflation rate had on your business?

• I have had to increase costs for my customers: 34%
• I have had to use my own personal savings: 26%
• I have had to stop paying myself a salary: 18%
• Because of increased operating costs, I can't focus on growing my business: 15%
• I have been unable to afford as many supplies: 14%
• I have applied for a small business loan: 10%
• I have had to borrow money from friends/ family for my business: 8%
• I have had to dip into my pensions pot: 6%
• I have had to use my inheritance: 5%
• I have had to close my business temporarily: 4%
• I have had to take out a second mortgage against my house: 1%
• It hasn't had any effect: 17%
• None of the above: 9%