A leading advisor to SME’s is urging businesses to have upfront conversations with clients around the need to increase costs and offset rising costs stemming from surging inflation.
Donald Boyd, Head of Growth at Azets, says that anecdotally, in the short to medium term margins are holding up, particularly in the B2B sector.
“My message to businesses is that customers are more accepting of price increases in the main as they in turn are passing the increases on. However, any price rise is far less forgiving in the B2C sector, where retail and hospitality will be first impacted with reduced discretionary spending by squeezed families.
“We may also see a dash for value as households understandably eschew higher value goods for strong value propositions. Whilst it is of little comfort to SMEs and the public, inflationary pressures are resulting from higher household energy prices and fuel costs rather than anything fundamentally unsound in the economy.
“Businesses should try and hold their nerve until inflation peaks at around 10% or above before starting to fall next year. We also know that many companies pared back to the bone during the pandemic, which subsequently translated into record efficiencies, meaning there may be leeway to retain current pricing without compromising profits as there is a cushion which wasn’t there before.
“Whilst inflation is clearly a pressing issue, the main issue for businesses is the labour market and the lack of skilled workers is clipping wings of the expansion plans of many companies because they cannot scale up without comprising quality.
“In some ways, this is more of a danger to growth than inflation.”