How UK businesses can navigate rising operational costs

Authored by RSA

The cost of living has been surging throughout 2022, with widespread news of people struggling to match the extortionate heating costs and petrol prices, especially as we enter these winter months.

Rising operational costs are causing a lot of chatter in the business world. Research by the British Chambers of Commerce found that 82% of businesses in the U.K. saw inflation as a growing concern for their business.

On further investigation, above the usual cash flow and credit risk worries, the three leading causes of operational concerns are:

• Cost of energy
• Employee retention and wellbeing
• Transportation and supply chain management

The government has introduced a few grant schemes which could help if a business is affected by the cost-of-living crisis. This could give the business extra money to invest in employee support, pay rises, or improving your operations.

However, if your clients are looking for other ways to ease the pressure, here are a few things we have discovered.

Cost of Energy

Recent data from the Federation of Small Businesses (FSB) shows that firms have experienced a 424% rise in gas costs and a 349% increase in electricity since February 2021. The same study outlined that as many as 53% of businesses expect to stagnate, shrink, or fold in the next year as a result of rising energy costs.

Having been put under pressure from across the UK business community, on 8 September, Liz Truss announced that businesses will get support and capping business bills for six months. Two weeks later, it was announced that energy bills for UK businesses would be cut by around half their expected level this winter under a support package.

However, there are also a few ways that you can look to reduce costs and bring a sustainable change to your expenditure. Some utility companies offer a free energy audit program to ensure that you are using energy in the best way for your business. They can help you identify areas to trim down your energy needs, but other tips include:

• Energy companies usually have high peak times during the day. Where practical, try to encourage everyone in your company to only use excess energy during the low or off-peak times and educate them on the energy-saving features of air conditioners, printers, and microwaves
• Replace your lighting. CFL and LED lights reduce energy consumption by up to 75% and offer 2-3 times longer lifespans
• Check all of the equipment you are using is energy star rated, replace old items, and make sure what you use is giving you the best efficiency possible
• Appliances and electrical equipment will continue to draw power as long as they are plugged in. Switch off all printers, microwaves, lights, air conditioners, and vending machines during weekends and evenings
• A programmable thermostat can automatically adjust the workplace temperature to a comfortable level and turn right down when no one is working. The recommended level is 25 degrees centigrade in summer and minimum heat to 20 degrees centigrade in winter for optimal energy savings. Every 1-degree increase in thermostat setting in winter will use 15% more energy (in summer it will use 10% more energy)
• Seal drafts and doors, which will make it better for keeping the heat in during the winter and cooling in the summer months
• Allow employees to work from home on alternate days and encourage them to conduct virtual meetings

Keeping people healthy and happy

As the cost of living continues to rise, money becomes a great cause of stress and anxiety for employees, no matter what position they occupy. According to a report by the CIPD, one in four employees say money worries are affecting their ability to do their job.

Employers have a more critical role to play than ever before in supporting employees’ financial wellbeing. Where pay rises just can’t be given, financial benefits can help employees' salaries go further and reduce the stressful burden of high outgoings and debts. Financial well-being benefits can include financial education, workplace savings schemes, discounts and salary-deducted loans or advances. Get this right and you could keep your people - Harvard Business Review found that 80% of employees would choose additional benefits over a pay raise.

Research by HR specialist Ciphr in June 2022 showed that nearly one in three workers has taken on more hours at work to help pay bills, and two-thirds admit that the cost-of-living crisis is causing them to feel stressed.

Stress can cost your business money, so look to offer a range of effective workplace mental health programmes, an Employee Assistance Programme (EAP) and wellbeing initiatives and keep communication between you and your people open and frequent.

Transportation and supply chain management

According to TEG Road Transport Price Index, the average price-per-mile for haulage and courier vehicles increased from 101.5 points to 116.8 points between January 2021 and January 2022.

This is a 15% increase year on year. This is a big concern for business owners who have to factor in delivery and transportation to keep their business running.

The biggest costs are incurred through a lack of proper planning, transparency, and poor decision-making, which in turn can lead to failed deliveries and appointment targets, unhappy customers, and lost business. Take time to review your overall logistics and supply chain to look for efficiencies and reduce logistical expenses - from streamlining inventory levels and revising smarter shipping/delivery networks to improving relationships with your suppliers.  All changes could result in better cost management in the longer term.

A few ideas include:

• Providing drivers with optimised routes using a route planner, which can factor in traffic, weather conditions, weight, and load capacity to get the most efficient route possible
• Avoid costly breakdowns and ensure regular maintenance for the best fuel consumption. Reports on distance travelled and regular inspections could save you money in the long run
• Return deliveries are costly. Improve first-time success by enabling customers to choose their preferred delivery windows and offer alternatives if they are not there to receive the delivery
• Rail transportation can be considerably cheaper than road freight, so maybe look for combining both modes to stay on time and on budget
• Reduce your use of more expensive shipping options and look at full-load shipment consolidation.
• The increase in fuel prices will also affect the day-to-day movements of employees and suppliers. Move to virtual supplier management and remote working wherever possible to reduce fuel usage and look to switch your fleet to electric and hybrid vehicles

Whatever the current crisis business owners need to navigate, cutting unnecessary expenses can be highly beneficial for your business overall and will help you build resilience for the future.

We know first-hand that for SMEs facing squeezed margins, insurance premiums may seem like a grudge purchase – particularly in a hard market. However, being underinsured in any area may leave your clients precariously exposed should the worst happen.

But this can also be a great opportunity to reinforce your relationships. Quality conversations between you and your customers can go a long way to ensuring the suitability of their insurance products and adequacy of cover, as well as helping you strengthen communication and differentiate your business.

Discover more: Underinsurance - closing the protection gap