Will energy prices force small businesses in to liquidation?
Discussion
I feel a storm coming worse than COVID.....
A guy was on LBC the other day saying his fish & chip shop will go to a three day week because he's now paying 10x the normal price of energy. They wouldn't renew his contract and would only put him on variable. He's got 10 staff who will need to go to reduced hours.
My electric has gone from £10,000 to £20,000, thankfully I'm in a fix at 33p/kwh until mid-2023. This is still double what I was paying but I hear businesses are now being quoted 55p+/kwh !
My gas has over doubled, but thankfully we don't use too much. But I'm still paying £4,000 more than normal and if it's a cold winter, then god help me.
Most of my electricity costs go on the huge number of LED tubes down the aisles of my retail store. So unless I remove every other tube, there is no way to bring the bill down, and who would want to shop in the dark anyway?
I'm £14,000 out of pocket, and my business isn't energy intensive. My profits are already down with the cost of imports. I'm seriously thinking of packing up and getting a job. The sh*t storm we're all about to go through over the next couple of years will be make or break for many of us.
How the hell are all the small biz in this country going to cope??
There is no price cap for small business, no matter how small. Meanwhile I'm sure the likes of Greggs, McDonalds and so on have better leverage to negotiate 3 years terms to hedge as much as possible. Meanwhile, your independent food outlet is stuck paying over the odds because they have no negotiating power or £mil in the bank to tide them over during this 'temporary' energy crisis.
I don't hear anything coming from govt, the FSB or any other organisation specifically about small businesses? Is nobody talking about it?
What are your thoughts?
A guy was on LBC the other day saying his fish & chip shop will go to a three day week because he's now paying 10x the normal price of energy. They wouldn't renew his contract and would only put him on variable. He's got 10 staff who will need to go to reduced hours.
My electric has gone from £10,000 to £20,000, thankfully I'm in a fix at 33p/kwh until mid-2023. This is still double what I was paying but I hear businesses are now being quoted 55p+/kwh !
My gas has over doubled, but thankfully we don't use too much. But I'm still paying £4,000 more than normal and if it's a cold winter, then god help me.
Most of my electricity costs go on the huge number of LED tubes down the aisles of my retail store. So unless I remove every other tube, there is no way to bring the bill down, and who would want to shop in the dark anyway?
I'm £14,000 out of pocket, and my business isn't energy intensive. My profits are already down with the cost of imports. I'm seriously thinking of packing up and getting a job. The sh*t storm we're all about to go through over the next couple of years will be make or break for many of us.
How the hell are all the small biz in this country going to cope??
There is no price cap for small business, no matter how small. Meanwhile I'm sure the likes of Greggs, McDonalds and so on have better leverage to negotiate 3 years terms to hedge as much as possible. Meanwhile, your independent food outlet is stuck paying over the odds because they have no negotiating power or £mil in the bank to tide them over during this 'temporary' energy crisis.
I don't hear anything coming from govt, the FSB or any other organisation specifically about small businesses? Is nobody talking about it?
What are your thoughts?
Yes - business insolvencies are on the rise, up 20% on pre-covid levels. What is hard to say is how much is this catch up for lower numbers during covid, versus the result of real challenges.
A bit of a perfect storm for some businesses I.e. cost of stock, shipping delays & costs, staff wage inflation, energy costs and drop in consumer demand.
U.K. gov stats on company solvencies up to June ‘22
https://assets.publishing.service.gov.uk/governmen...
A bit of a perfect storm for some businesses I.e. cost of stock, shipping delays & costs, staff wage inflation, energy costs and drop in consumer demand.
U.K. gov stats on company solvencies up to June ‘22
https://assets.publishing.service.gov.uk/governmen...
I think this is going to be huge, and has only just reached the media. Another example in this article - https://www.bbc.co.uk/news/uk-scotland-north-east-... - A small gift shop and cafe close to me, where their energy bills will quadruple. For a lot of businesses it will be totally unsustainable.
abzmike said:
I think this is going to be huge, and has only just reached the media. Another example in this article - https://www.bbc.co.uk/news/uk-scotland-north-east-... - A small gift shop and cafe close to me, where their energy bills will quadruple. For a lot of businesses it will be totally unsustainable.
For over 30 years governments have not made the right decisions on our energy security. We should of been building a new Nuclear power station ages ago. Energy security and independence should of been our number one priority. Before NHS etc….The combined effect on a business of huge energy prices, an obvious reduction in people purchasing from you due to inflation as people try to deal with their own home price increase on energy , mortgages and food and you have a perfect recipe for a major recession like we haven’t seen.
It’s a bloody shambles
Are prices projected to trend down in 2023/24 almost as
As fast as they will have risen? If so it’s painful but It must be a very fragile business not to whether the storm? Wouldn’t electricity be a small fraction of most business expenses? Compared to say wages?
Happy to be corrected.
As fast as they will have risen? If so it’s painful but It must be a very fragile business not to whether the storm? Wouldn’t electricity be a small fraction of most business expenses? Compared to say wages?
Happy to be corrected.
lizardbrain said:
Are prices projected to trend down in 2023/24 almost as
As fast as they will have risen? If so it’s painful but It must be a very fragile business not to whether the storm? Wouldn’t electricity be a small fraction of most business expenses? Compared to say wages?
Happy to be corrected.
I usually make £40k profit, have done for 10 years.As fast as they will have risen? If so it’s painful but It must be a very fragile business not to whether the storm? Wouldn’t electricity be a small fraction of most business expenses? Compared to say wages?
Happy to be corrected.
This is down to £30k due to the import/container crisis for the last 18 months but I can live with that..... Still putting food on the table hoping it's temporary.
But then take away another £14,000 and I'm down to £16,000 profit so what's the bloody point of staying in business? I could earn £40k on the job market, plus perks and without the stress of using my home as security for financing the business day to day. Shame I would need to lay off all my staff.
Oh and I can't put my prices up any more than I already have, I'm already teetering on what customers find acceptable and I'm constantly being told X is cheaper in B&Q and so on.
Most of what I sell is non-essential.
In fact, I would be better buying certain paints I stock from B&Q instead of my wholesaler because the big brands give such a p*ss poor deal to the wholesalers who supply independents like myself.
Chipper said:
I don’t think people are aware what’s coming.
I think a lot of people are but there's a very vocal minority saying it's all much ado about nothing. Likely because they're well off and will be able to ride out whatever is coming relatively unscathed.
There's an article today on the BBC about the number of nurseries going bust. They can't turn the thermostat down this winter and are struggling to retain staff because the wages are so poor.
They put the prices up too much and there just won't be any point my missus going to work.
Chipper said:
For over 30 years governments have not made the right decisions on our energy security. We should of been building a new Nuclear power station ages ago. Energy security and independence should of been our number one priority. Before NHS etc….
The combined effect on a business of huge energy prices, an obvious reduction in people purchasing from you due to inflation as people try to deal with their own home price increase on energy , mortgages and food and you have a perfect recipe for a major recession like we haven’t seen.
It’s a bloody shambles
The political parties want to get elected.The combined effect on a business of huge energy prices, an obvious reduction in people purchasing from you due to inflation as people try to deal with their own home price increase on energy , mortgages and food and you have a perfect recipe for a major recession like we haven’t seen.
It’s a bloody shambles
Saying your taxes are going up so we can build new power stations, reservoirs, gas storage facilities would be a instant vote killer.
And we the public have got used to low taxes and kicking the can down the street .
My belief (hope) is that the predicted price rises are artificial and that the actual rise, whilst significant, will be more tolerable. Then the energy company and/or government can turn around and say how wonderful they were in limiting the rise!
A friend and business associate runs a hotel in the Lake District catering exclusively for Coach Tour operators. He books the rooms out in bulk up to two years in advance on non-negotiable rates but rates that take into account normal increases in costs. If the energy prices do increase, an otherwise highly profitable business will be gone by the end of next year.
A friend and business associate runs a hotel in the Lake District catering exclusively for Coach Tour operators. He books the rooms out in bulk up to two years in advance on non-negotiable rates but rates that take into account normal increases in costs. If the energy prices do increase, an otherwise highly profitable business will be gone by the end of next year.
I am currently working with a small group that operates two warehouses, each through it's own company.
Both operating companies are having a tough time - looks like one's about to go into insolvency soon, the other should survive. The utilities contract for both came up recently, one about 3 weeks before the other. When the first one came up we believed we had a solvent deal so could enter the new fix - at a price roughly double that from the previous contract. Fortunately this is the better performing of the two companies.
However, by the time the second came up the financial position was more in jeopardy so we couldn't fix (incur a liability when the solvency of the business was in doubt) so that operation has moved onto a variable rate. Admittedly it's only 'another nail in the coffin' for that company but it's now paying at least 3x the previous rate.
In the scheme of things the costs aren't make or break for either company (c 50m t/o each - starting utility costs were both 50k pa) but shows how rapidly things are moving and how lucky some companies are having to be with the terms of any current contract.
In answer to your question though - yes, from what I've seen, increased costs are pushing companies both large and small closer to the edge, albeit for most it will be one factor of many.
Both operating companies are having a tough time - looks like one's about to go into insolvency soon, the other should survive. The utilities contract for both came up recently, one about 3 weeks before the other. When the first one came up we believed we had a solvent deal so could enter the new fix - at a price roughly double that from the previous contract. Fortunately this is the better performing of the two companies.
However, by the time the second came up the financial position was more in jeopardy so we couldn't fix (incur a liability when the solvency of the business was in doubt) so that operation has moved onto a variable rate. Admittedly it's only 'another nail in the coffin' for that company but it's now paying at least 3x the previous rate.
In the scheme of things the costs aren't make or break for either company (c 50m t/o each - starting utility costs were both 50k pa) but shows how rapidly things are moving and how lucky some companies are having to be with the terms of any current contract.
In answer to your question though - yes, from what I've seen, increased costs are pushing companies both large and small closer to the edge, albeit for most it will be one factor of many.
It won't just be small business in difficulty. Small to large scale manufacturing businesses will be seeing their input costs going through the roof at the moment.
I left such a business about 18 months ago, a manufacturer of aerospace parts, turnover £30m-ish and monthly energy costs were circa £100k a month back then. I shudder to think what they will be having to pay now. Given they were only making £1-2m profit a year, I wouldn't be surprised if the energy bill increase hasn't wiped that out. Then I'm sure the unions will be pushing for pay increases, and the raw materials suppliers I have heard some have increased prices between 20% and 100%.
I left such a business about 18 months ago, a manufacturer of aerospace parts, turnover £30m-ish and monthly energy costs were circa £100k a month back then. I shudder to think what they will be having to pay now. Given they were only making £1-2m profit a year, I wouldn't be surprised if the energy bill increase hasn't wiped that out. Then I'm sure the unions will be pushing for pay increases, and the raw materials suppliers I have heard some have increased prices between 20% and 100%.
Edited by DE1975 on Monday 15th August 09:22
egor110 said:
Chipper said:
For over 30 years governments have not made the right decisions on our energy security. We should of been building a new Nuclear power station ages ago. Energy security and independence should of been our number one priority. Before NHS etc….
The combined effect on a business of huge energy prices, an obvious reduction in people purchasing from you due to inflation as people try to deal with their own home price increase on energy , mortgages and food and you have a perfect recipe for a major recession like we haven’t seen.
It’s a bloody shambles
The political parties want to get elected.The combined effect on a business of huge energy prices, an obvious reduction in people purchasing from you due to inflation as people try to deal with their own home price increase on energy , mortgages and food and you have a perfect recipe for a major recession like we haven’t seen.
It’s a bloody shambles
Saying your taxes are going up so we can build new power stations, reservoirs, gas storage facilities would be a instant vote killer.
And we the public have got used to low taxes and kicking the can down the street .
ChocolateFrog said:
Chipper said:
I don’t think people are aware what’s coming.
I think a lot of people are but there's a very vocal minority saying it's all much ado about nothing. Thing I am seeing, looking from outside of the UK inwards, is that everyone believes its an issue unique the UK and are in Tory bashing mode.
It's rife in Leftyland too here in Sweden.
It's going to be a s
t 12 months, but people need to accept it, Covid knock is now happening. Chamon_Lee said:
Chipper said:
I don’t think people are aware what’s coming.
It’s borderline delusionalThe fear is very real, it's just that people are unable to do anything about it.
Actually, maybe they are delusional, many businesses are existing solely to pay their staff with owners going unpaid. This will get worse for them so maybe they should all just shut up shop now rather than wait to go insolvent.
Deluded
a guy called Prof Richard Murphy published this a few days ago, I believe - a plan to get through the crisis for families and businesses
https://www.taxresearch.org.uk/Blog/wp-content/upl...
https://www.taxresearch.org.uk/Blog/wp-content/upl...
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