How businesses can prepare for rising costs in 2025

 The first quarter of the year often sets the tone for the months ahead, but what happens when Q1 falls short of expectations? 

Whilst the most recent figures released by the ONS show some encouragement in retail sector sales, Q1 as a whole will have been disappointing for many businesses.

Rising costs ahead: what employers need to know

Upcoming increases to employer costs may be leaving some business owners concerned about potential financial difficulties ahead. From 6th April 2025, business costs are set to rise as increases to the National Minimum Wage rate and Employer National Insurance Contributions take effect.  

Following the implementation of these changes, it is expected that inflation will also rise as businesses pass these additional costs onto the consumer, likely to reduce consumer spending especially in sectors where spending is more discretionary.

Navigating financial pressure: practical business tips

If your business is struggling, then taking swift action is key to your survival.

It may be a business cliché but cash really is king and having access to good cashflow forecasting and modelling tools will allow business owners to make informed decisions quickly.

Understanding the flow of payments in and out of your business is crucial, especially any tax related expenses which will increase from April 2025. It’s important to identify areas where you can reduce costs to ensure you can meet these new obligations. While fixed costs like rent are generally beyond your control, unless you can negotiate a reduction, you often have more flexibility with payroll and supplier expenses. Focusing on these areas can be a good starting point to maintain a healthy cash flow.

Use financial data to guide your decisions

Access to real-time financial data enables you to analyse business trends, including customer behaviour, sales performance, and which products yield the highest profit margins. This insight and data can help to adjust your product range so that you are not carrying unprofitable stock that takes too long to sell or ends up being heavily discounted. Being able to pivot your business offering could make a significant difference – remember the innovation that allowed some business to thrive in lockdowns of 2020.

Be realistic about your fixed costs and look at every eventuality. If you are not able to make rent payments in full for the next quarter, then communicate this early to your landlord. They may be accommodating in order to  avoid bearing the responsibility of business rates if they are unable to re-let the unit quickly.

Businesses struggling with cash flow also need to understand HMRC’s position. HMRC may allow you to make alternative arrangements to pay if you can’t pay in full on time. Communication with them is key if there is no other alternative.

When to consider insolvency options

If you find yourself in a position where you feel all potential solutions have been exhausted, it may be time to consider looking at insolvency options.

CVAs and prepack sales explained

Where a business would be profitable if they didn’t have unserviceable debts then a Company Voluntary Arrangement (CVA) or a Prepack Administration might be an option. A CVA can be used where creditors will be willing to accept a compromise on their debt, however you will also need to have the support of HMRC in relation to their preferential debt (VAT and PAYE) as well as your secured creditors.

If an agreement cannot, or is unlikely to, be reached with creditors, then a prepack sale may be an option. A prepack sale involves an Administrator selling the business and assets of an insolvent company to a purchaser who can then trade the business going forward without the historic liabilities and unserviceable debts.

If a director is considering a CVA or Prepack sale then specialist advice should be sought to ensure that the process is transparent and fair to creditors, and the transaction has the best prospect of success.

For more information, support and advice on this topic or any of your other financial needs, please contact the restructuring team.