My HGH
My HGH
Whilst the issues in the Middle East may appear thousands of miles away, we know that it will have a ripple effect across our clients’ businesses, some more than others. If this disruption continues, clients who were impacted by the Russia energy shock, may find this much worse.
We wanted to share some thoughts about how you may prepare and what steps you might want to take.
Energy prices rarely move in isolation. There are several interconnected pressures building at the same time.
Energy costs
If your business is on a fixed energy contract, you may feel insulated, for now. But once that contract ends, you’ll be exposed to market rates, which could rise sharply. We do not know if the Government will bring in any support for businesses.
This creates a cliff-edge risk:
- Costs can jump suddenly, not gradually
- Margins can be squeezed overnight
- Cashflow can come under immediate pressure
Rising Interest Rates
If inflation ticks up, as the Bank of England has predicted, then rises in interest rates are likely to follow.
That has direct consequences on:
- Higher loan repayments
- Increased cost of borrowing
- Reduced access to affordable finance
If your business has variable-rate debt, or refinancing coming up, this is particularly important.
Supply Chain Disruption
Global instability, especially around key shipping routes like the Strait of Hormuz, can have ripple effects far beyond oil prices. Freight will be compressed around other routes, and their direct costs will increase.
You may see:
- Delays in receiving goods
- Increased logistics costs
- Suppliers raising prices or failing altogether
Even if you don’t import directly, many suppliers in your supply chain will – and those costs will likely be passed on.
Margin Pressure
When energy, borrowing and supply chain costs all rise together, this will result in lower margins for your business.
Businesses that don’t actively manage this risk can quickly find themselves:
- Trading at reduced profitability
- Struggling to maintain stock levels
- Experiencing cashflow strain
What Can You Do Now?
The key message is simple: don’t wait and see. The most resilient businesses are already taking proactive steps.
Here are some practical actions to consider:
Review Your Financing
- Can you refinance now to secure a fixed rate?
- Should you increase your cash position while terms are still favourable and provide a cash flow cushion?
- Are there opportunities to strengthen your working capital internally? Step up credit control, use supplier finance, keep your own business credit score strong.
Lenders tend to react quickly to interest rate predictions, so don’t delay this review. Speak to us about how we can support to review the lending market and also undertake a Credit Review, so you know your credit score is as high as it can be. This could extend better supplier terms and reduce borrowing interest rates.
Check Your Energy Contracts
- When does your current contract end?
- Can you fix rates now to avoid future spikes?
- Have you explored alternative suppliers or tariffs?
Leaving this too late could expose you to significantly higher costs.
Explore Alternative Energy Options
- Solar, biomass, and other renewables are becoming more viable
- Installation lead times can be long, so start now
- There may be business support or grants available. Manufacturers should look at the Made Smarter initiative.
Even partial energy independence can reduce risk.
Review your Margins
- Track profitability by product, service line or customer, not just for the overall company
- Be prepared to increase prices where necessary
- Review cost bases, including staffing and overheads
Small adjustments made early are often less painful than drastic cuts later. Speak to us if you need more regular management information so you have data you can rely on.
Stress-Test Your Supply Chain
- Which suppliers are most exposed to global disruption?
- Are you overly reliant on a single provider?
- Can you build alternative relationships now?
Don’t Wait for the Numbers to Tell You
By the time the impact is shown in your annual accounts, it may already be too late to make a difference.
The businesses that navigate periods like this successfully are the ones that:
- Plan early
- Take advice
- Make decisions before they’re forced to
Get In Touch
We know that periods of economic stress are always challenging, but they also bring opportunities for reviewing your activities carefully and potentially creating a more streamlined business.
If you’re unsure how exposed your business might be, please get in touch and we can discuss it together, along with what actions you might want to take now.
