I was watching a BBC news report recently that said, more than half of small and medium-sized firms have said they will increase their prices this year due to the weak pound.
I’m not at all that surprised considering the fall in value of the pound over the last 6 months. Official figures state that the sterling has fallen by around 16% against the dollar since Britain voted to leave the EU last June.
I’m sure Brexit will be at the heart of such price rises and let me explore this in more detail. Brexit has weakened the Pound Sterling against other currencies such as the euro and Dollar. Many SME either importing directly or through other channels will have been locked into a price well before they get the goods. When it comes time to pay and the currency moves against them, their price to suppliers rise and in order to protect their margins, SME’s in turn pass on this price rise to their customers.
However, is Brexit the only cause for such a price rise. I don’t think so. Whilst it’s topical to blame brexit for everything, there certainly are other underlying causes of this price increase.
The SME sector is gaining increasing attention with many more small businesses coming to the fore than before. In 2016, we saw a record 80 small business being born every hour in the UK!
Redundancies and a growing move to employees seeking corporate freedom has resulted in many more SME’s coming about. This causes competition for talented employees, rental business premises and raw materials from suppliers – just siting a few examples. Input cost goes up because of increase demand and shortage of supplies. Rising input costs result in higher prices that customers have to bear.
Finally, and more importantly, late payment of invoices, especially when selling to large corporates – is killing small businesses, where cash flow is like the lifeblood of their business.
SME’s do have various solutions though. They can hedge their prices against any weakening in pound sterling. They could lock in a price before the pound devalue or buy hedge protection / or insurance from their bank.
Late payment of invoices can be fixed by assertive debt collection. If this risks your customer relationship then seek out short term funding to ensure your business continues to thrive.
Price rise may not always be the best solution. By keeping your prices low, you’ll probably gain more business as competitors increase their price. Whilst overall margins may come down, volume of business will go up because you are more competitive, and this will make up for the increased input cost.