Cost of living crisis: Why small business owners are feeling bleak

The rising cost of living is heaping fresh pressure onto small business owners, with nearly a third believing there is a possibility they will be out of business within the year.

A survey of 1,000 small business owners in the UK by PayPal found that one in 10 (12%) do not expect to be in business within the year, with a further 15% unsure about the future of their business.

PayPal’s Business of Change: Wellness & Empowerment Report 2022 found that more than three quarters (78%) of small businesses cite the rising cost of living to be the biggest threat to their business over the next year.

Two in five (40%) business owners surveyed by PayPal said reduced customer spending is having a negative effect on cash flow, while over a third (35%) are feeling the pressure from hefty fuel and energy price hikes.

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For some, the rising cost of food, fuel and energy could even overshadow the disruption caused by the COVID-19 pandemic and Brexit: while 67% of respondents said the past two years had been the most challenging since they started their ventures, nearly a quarter (24%) fear the next 12 months could prove even more difficult.

The situation has become so bad that a quarter (24%) of business owners are now actively ignoring the overall financial health of their businesses because they are “worried about what closer scrutiny might uncover,” PayPal found.

Show me the money

The rising cost of living is sparking difficult conversations in the workplace, with some workers suggesting that their employers should foot the bill for price increases, particularly if they are expected to commute to an office.

Employers already risk losing staff to rivals who can offer better pay and greater flexibility, meaning small businesses are in a precarious spot when it comes to hiring and retention.

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Overall, 52% of small business owners surveyed by PayPal said they were concerned about future business uncertainty, and tightening financial pressures are taking a profound toll on business owners’ mental wellbeing.

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Three in five (60%) owners said they found running their business stressful, with 62% suffering sleepless nights and 33% feeling alone and isolated.

Worries about cash flow are also pushing entrepreneurs to work longer and harder in an effort to keep their businesses running.

Nearly half (44%) of small business owners surveyed said they regularly work weekends, with a third working seven days a week. More than a third (36%) will go at least six months before taking a holiday or time off, if at all, PayPal found.

Regardless of these worries, said PayPal, “there is light at the end of the tunnel”.

“Small business owners have learned important lessons from the past two years, and report a renewed sense of self-confidence in their business and their own abilities,” the report said.

This includes training and upskilling in new technology: a third (31%) of SMEs have taken steps to develop their own financial literacy skills and help manage company finances. As a result, more than half (56%) now feel more financially savvy, and a quarter (25%) feel empowered by their own leadership abilities, the survey found.