“It’s heartbreaking to close our store”: UK SMEs reflect on a year of energy bill chaos

Exactly 12 months ago, Russian troops invaded Ukraine, accelerating a global energy crisis that has created a so-called ‘trilemma’ of issues for businesses.

Firm owners, still bruised from the pandemic, are once again taking the hit as supply chain costs rocket, business overheads increase, and consumer spending curtails.

But with government support measures expected to dramatically reduce from April 1, analysis from Experian predicts that 30% of SMEs will not have enough cash to absorb the rise. That’s even more true for particularly vulnerable sectors like retail and hospitality.

One small retailer has already told Startups they will have to close their shop to survive the impending energy price shock. Below, others reflect on the challenges of the last 12 months – and how they are feeling about the year ahead.

“We have had to close our store.”

Nikki Collier runs the Sudbury-based childrenswear company, BiNiBabies. Sollier has been forced to take drastic measures to survive the surge in utility bills: losing her shop altogether.

Describing the shift to selling entirely online as “absolutely heartbreaking,” Collier says it is an indicator of things to come for the small businesses that cannot compete with large rivals.

“At some point very soon, if not already, our high streets will become ghost towns,” she predicts. “We will do our utmost to drive sales through our website and offer more bespoke products, but competing with major online retailers is a monumental challenge.”

“I had the heating on for one day in December.”

Elizabeth Jones is the owner of Balham-based children’s clothing and gift shop, Natural for Baby.

Last year, energy providers sent Jones a predicted bill increase of ten times the amount she paid in January 2021. By using a smart meter, she has managed to reduce the invoice, but is still paying double what she was this time last year.

“I sold my air purifier, returned my rented air conditioning unit,” she reveals. “I only have overhead heating and plug in heaters. So far, I have turned them on for one day for a pop-up shop in December.”

Elizabeth Jones, owner of Natural for Baby

The rising cost of living has also thrown a spanner into customer relationships, as people cut down on buying premium items to pay for increasingly-unaffordable everyday items.

Jones is concerned about her customers. She has only made one online sale in the UK this year.

“If customers do not return, I may well have to close my business,” she says. “This would feel like a defeat, but if people do not have money to spend as it’s all used up on utilities, then what can we do?”

“I had half as many customers in January.”

Last year, Startups spoke to Grenade founder, Juliet Barratt who spoke on the need for SMEs to show sensitivity to consumers’ financial worries.

Michelle Cunningham is the owner of an online boutique, Tarelle Accessories. Cunningham discloses that sales have dropped by 80% from January 2022, while traffic to the Tarelle website has halved.

Retail and hospitality can still be a recession-proof business idea, as consumers will still need to purchase everyday staples like groceries. But sellers of more indulgent buys, like Tarelle, need to keep a closer eye on changing customer motivations.

“In a cost of living crisis, accessories are not a necessity so our challenge is to make enough sales to keep the business viable,” says Cunningham. “We can’t hold onto too much stock but have to hold enough for demand.

“I think 2023 is going to continue to be tough for us as a small business and I don’t see it improving as consumers continue to watch what they spend.”

Mid-crisis, the government cuts support for ‘at-risk’ small businesses

Government aid for tackling energy bills increases has so far been lightweight. Some respite came in the form of the Energy Bill Relief Scheme (EBRS) announced in September.

In January, however, the government announced it would slash these subsidies and replace them with a scaled-down, Energy Bill Discount Scheme at the end of March. The new program is expected to run for 12 months.

The move has done little to build business owners’ confidence. Gas prices are predicted to begin falling in July, yet they remain three times higher than average prices before the energy crisis began in 2021.

Personal finance company, Nerdwallet, recently surveyed 500 UK small business owners to see how they are responding to the energy bill crisis. The majority reported having already made cost-cutting measures, including:

• 43% who had cut spending in training and development
• 38% who had put a freeze on hiring
• 25% who had been forced to let existing staff go

SMEs hold out hope for the upcoming March budget

To date, there is little indication that the Chancellor has anything else up his sleeve in terms of financial aid. Entrepreneurs are relying on the upcoming Spring budget to deliver a more generous programme of assistance for the difficult months ahead.

In Elizabeth Jones’ view, what little financial breathing space the Energy Bill Relief Scheme offers has been cancelled out by the energy providers continuing to profit from price rises.

Instead, she proposes a further discount to business rates. While some industries (primarily retail and hospitality) are currently able to claim relief on these fees, Jones says that reducing the rates more is the best solution to balance out the surge in bills.

Another idea that Jones posits is to extend the payback terms for the government-backed Bounce Back Loans, which many small companies took out during the COVID-19 pandemic.

“If we were paying back less each month, this would help to raise the funds to cover the high energy bills,” she argues.

Despite the challenges, there’s still room for optimism

Analysts had previously speculated that the UK would enter into a two-year long economic slump at the end of 2022. However, data shows that the UK economy narrowly avoided entering a recession after recording a slight uplift in November of 0.1%.

In further positive news, earlier this month, the Bank of England released a new forecast that says the predicted recession will be shorter and less severe than expected.

Combined with the estimated drop in energy bills this July, there is cause for hope among business leaders. Barclays’ annual SME Barometer, released last week, revealed that 41% of UK SMEs are feeling sanguine about their future, following the uncertainty of 2022.

One ebullient entrepreneur is Chloe Moss, co-owner of Rotherham-based The Blind Badger Cocktail Company. Moss says the business has had an incredible start to 2023. “Despite our cocktail kits being non-essential products, demand has been extraordinary and we are very excited for the year ahead,” she adds. “It’s not all doom and gloom.”

Jess Magill, co-founder of the Devon-based micro-brewery Powderkeg, is also feeling upbeat about the year ahead.

“We have just had our busiest January ever so there’s life in the economy yet,” she assesses. “That said, we know lots of businesses that are struggling, cutting opening hours, and closing for good.

“The government urgently needs to support the retail and hospitality sector. It’s a huge contributor to the economy and a draw for tourism.”