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TWP says businesses must find a balance between price rises and cutting costs

Surrey-based accountancy firm TWP believes it is vitally important to make the right call when it comes to the challenge of cutting costs or raising prices during the current economic crisis.

The firm says that spiralling business costs far exceed the general rate of inflation for consumers at present, which is already at a record high, and that for many businesses it was now a tough decision between cutting costs and raising prices.

Although businesses do not want to contribute to the record rate of national inflation, surges in the cost of raw materials, energy and fuel, meant that they have little choice, warns TWP.

Susan Froude, a Client Manager at the firm, which has offices in Cranleigh and Weybridge, said: “Increasing prices may inevitably result in fewer sales, while cutting costs may involve reducing the quality of the service or product provided.

“The current cost crisis has only been made worse by rising employment costs, following the Government’s decision to increase National Insurance contributions.

“Although a change to the NIC thresholds is taking place next month, this only benefits the amounts paid by employees, not the companies that employ them.”

Susan added that the reality was that many businesses faced tough decisions in the weeks and months to come, which could determine their future.

To illustrate this point, she said that recent studies conducted by the Federation of Small Business showed that nearly half a million businesses were at risk of failure due to the current challenges.

“Efficient management of costs is a sensible and fairly straightforward way to drive profitability without having to resort to drastic cost-cutting measures,” said Susan.

Many tasks like renegotiating deals, switching suppliers, or cutting down on how much you buy, could help businesses to manage their costs but would take a lot of hard work and effort given the challenges faced by many suppliers.

Susan added: “We can help you with controlling your costs, but if you are looking to raise prices, you should contact clients directly and let them know well in advance. Open a two-way dialogue.

“This will allow you to explain your reasoning and remind them that higher prices still mean a high-quality product. Given the current situation, the worst thing you can do is to do nothing and hope for the best – action is needed.”

To find out more about TWP’s accountancy, tax and business advisory services, please visit www.twpaccounting.co.uk