Cost of living action plan for small businesses

Cost of living action plan for small businesses - Business man touching an interactive screen saying 'action plan'.

In this guide, we look at the actions small businesses can take to generate enough revenue to thrive, despite the current economic difficulties, and recession-proof their business.

Businesses of all sizes can experience testing times caused by a multitude of diverse challenges. From financial challenges to staffing issues, and from winning new business and growing their companies to retaining their existing clients, and many more issues in-between.

These challenges can be exacerbated when the UK economy goes through economic uncertainty, such as a recession.

In early 2023, Markel Direct conducted a survey with small business owners to discover the key issues they were facing. The survey has helped to give us an even better understanding of the self-employed market. We will highlight some of the results in this document.

We created this action plan to help you, the self-employed business owner, to navigate your way successfully through economic uncertainty by providing you with expert insights and access to the tools we have here at Markel that could potentially help you.

This action plan will focus on key areas such as generating more business, retaining customers, supporting your staff and customers and suppliers, whilst also highlighting the positive secondary effects that subtle changes can have.

What are the challenges faced by small business owners?

It is Spring 2023, and we are currently experiencing the toughest challenges to our economy since the 1970s.

This is mainly due to the rising global commodity prices for food, energy and fuel, all driven in no small amount by the conflict in Ukraine and the aftermath of the Covid-19 pandemic, both of which have served to push inflation above 10% for a calendar year for the first time since 1981 (1).

Indeed, stories of small businesses seeing their energy bills more than double have been common online in recent months (2 & 3). Which is just one of the challenges that small business owners and the wider UK economy are encountering.

 A graph showing UK inflation since 1970

Data source:

The problems that small businesses are facing are compounded by deeper challenges to the UK economy, including high housing costs, high mortgage rates, low productivity, a widening skills gap, exports that are outweighed by imports due to ongoing trade deal negotiations after BREXIT, and increasing childcare costs.

Despite governor of the Bank of England Andrew Bailey saying: “We are a very long way away from the 1970s,” (4) the similarities are quite clear.

In the 1970s, oil prices soared which in-turn increased the price of commodities such as food. People began to feel the pinch in their pockets and workers went on strike to demand ‘fairer pay’.

If you’re a self-employed small business owner you don’t have the option of going on strike to demand higher wages. You either win business and deliver the work, or you do not get paid at all!

What are small business owners’ greatest concerns?

In a survey conducted by Markel Direct in early 2023, small business owners highlighted their top ten concerns for 2023, the results of which can be seen in the table below.



% of total


Rising costs to run the business



Gaining new customers / clients



Retaining existing customers / clients



Rising costs of materials and supplies






Lower profit margins



Late or No-payments



Maintaining positive client / customer relationships



Impacts on importing and exporting



Staff leaving


Source: Markel Direct small business survey January 2023.

Unsurprisingly, the rising cost of running a business was their main concern, which when combined with the rising cost of materials and supplies totalled over 40% of the survey responses. This goes together with their concerns over winning new business whilst retaining their current customers.

If not carefully managed, these issues can cause greater problems throughout the whole supply chain. Even if your own business is financially stable, one or more of the suppliers you rely on may not be. Therefore, it has become more important than ever to collaborate with your suppliers to overcome economic challenges.

What action can small businesses take to generate enough revenue to thrive?

When the UK economy is struggling, media outlets will tend to focus on the negatives, because that’s what sells. Unfortunately, this can compel people to tighten their belts in panic, which includes businesses as well as consumers.

What can then happen is that businesses purchase less from each other and extend their payment terms to suppliers, whilst also using up their valuable stock to reduce outgoings and orders. This approach can compound any negative effects that a struggling economy can have and put a strain on the whole supply chain.

Despite this, there are many ways in which small businesses can survive, and even thrive, and emerge from a challenging economic period with a leaner, more efficient organisation and potentially with a broader client-base if diversification has been adopted.

Eight ways you can recession-proof your business

1. Build up your cash reserves

This is easier said than done, but saving is a great habit to create. By doing so, you can ensure you build up your cash reserves while your business is doing well so you can cover at least three months of trading expenses. This can help soften the blow to your business of a cashflow stifling reduction in orders and slow payments.

2. Pay off your debts

Clearing what you owe will relieve some of the pressure and can free-up cash for other more important business expenses.

You could even look at refinancing some debts into long-term agreements with smaller monthly payments. However, trying to do this once a recession has begun can be difficult as lenders may be less willing to refinance, so it pays to plan ahead and get your finances under control.

3. Take greater control of your receivables

Taking stock of your receivables can help to ensure you have a good cashflow to help you survive an economic downturn.

• Ensure you have signed contractual agreements in place with all your clients. To ensure you are paid on time, you could insert a penalty percentage charge on any payments that are later than your agreed terms. The amount you can charge is called statutory interest, which is 8% plus the Bank of England base rate for business-to-business (B2B) transactions. You will need to send a new invoice to your client if you decide to add interest to the money you are owed.

Note: you cannot claim interest if there is a different rate of interest within a contract. Also, you cannot use a lower interest rate if you have a contract with public authorities (5).

Example: If your business is owed £1,000 and the Bank of England base rate is 0.5%:

• The annual statutory interest on this would be £85.00 (£1,000 x 0.85 = £85.00)

• Divide £85 by 365 to get the daily interest: 23p per day (£85 / 365 = £0.23)

• After 50 days this would total £11.50 (50 x £0.23 = £11.50) of late payment interest that you could charge.

You are also entitled to charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest for it, with the amount you can charge depending on the size of the debt.

Note: You can only charge a business once for each payment.

Amount of debt

What you can charge

Up to £999.99


£1,000 to £9,999.99


£10,000 or more



If you have been forced to charge late payment interest on your invoices, but still have not received payment, then you might consider further action. Taking legal action of any kind can be expensive and, in many cases, it is seen as the last resort. Ask yourself if taking legal action is worthwhile and if the size of the debt justifies this course of action.

• If your client work is high value it is wise to take a deposit payment up front. This will help to keep your cash flowing and ensure both parties maintain an interest in the work.

• Before you offer credit terms to your clients it is a good idea to check their credit history. You can check a company’s credit report via services including Dun & Bradstreet and Experian. These services require a fee, which is small compared to your potential losses if a company leaves you with outstanding payments.

• Prioritise collecting all your overdue invoices. You have delivered the goods and services, so you are due the payment. If you continue to allow overdue payments you could struggle to recoup the monies due if those businesses that owe you money fall into administration.

4. Take control of your costs

When times are good, many businesses will spend more money to make more money. However, this approach can make it hard to build cash reserves, so it is important to control your spending and try and take advantage of the best value goods and services on the market.

Ask yourself “do we really need this right now?” If the answer is no, then hold onto your money until you do.

5. Diversify

By analysing your sales for the previous two or three years will highlight where most of your revenue comes from. Does most of your revenue come from a small percentage of your clients? If so, this could create a problem for you if those clients stop buying your products and services or slow down their orders and payments.

Diversifying will take you out of your comfort zone, but it may improve your revenue in both the short-term and long-term. Is there a product or service – that is related to your current products and services – that you could add to your portfolio?

6. Look for new opportunities

Looking for new opportunities and diversification go together. There are many opportunities you can take advantage of when the economy is struggling that may not have been available to you beforehand.

• Monitor your competitors – If you advertise your services online you’ll likely be up against your competitors. In an economic downturn you might see less of their advertising. If this is the case, then you could pinch some market share simply by continuing with, or increasing your, existing advertising.

• Sell or rent – If you have large office or space in a warehouse that is unused, or if you have unused computers, you might consider sub-letting your extra resources to other micro businesses and even sell your unused hardware to raise extra cash.

• Assess and improve your internal operations – Economic downturns are a good opportunity to look at your own in-house processes, streamline your operations and remove any wastage. Doing this will make your business leaner and will help you to reduce your costs whilst also helping your business recover quickly once the economy starts to recover.

• Explore new markets or acquire other businesses – A recession can be an unfortunate time for many businesses, but this can create opportunities for other businesses to grow via acquisition.

7. Collaborate

Working closer with your existing supply chain, plus creating new strategic alliances with other suppliers and potential referral partners can help you to generate extra revenue and cut costs.

Referral marketing is all about building and developing relationships and trust. It requires commitment from all the parties involved. You might need to be prepared to refer to your new referral partners first, before they will refer business to you.

Note: Even if you feel that you have a strong relationship that is built on trust with a referral partner, it is still wise to ensure you have a contractual agreement between you in place, just in case something untoward does occur. You might also want to consider adding Markel Direct’s legal expenses insurance to your business portfolio for added protection.

8. Advertise more effectively

When times are tough, one of the first areas where budgets are cut is marketing. Reducing the marketing budget can lower immediate costs, but it also typically reduces sales and business awareness in your target markets both short-term and long-term.

The digital age has made it easier for businesses to focus their efforts on social media promotion and via online paid advertising. However, while adopting this route offers expediency, it requires digital skills and can pit small businesses into competition against competitors with larger advertising budgets for the same online customers.

Online promotion, unless done with focus, can be very broad and unsuitable for many small businesses. As a result it may not achieve what you want it to achieve, which can be a waste of time and money.

For a small business to thrive, it is important to create a strong local reputation and to build a network of referral partners, and that means working hard to build relationships.

Build relationships, benefit from referrals

There is still no substitute for face-to-face networking and developing strong business relationships to help you win more new business.

Developing a referral marketing strategy can help you survive an economic downturn and generate business for many years to come. Referral marketing is based on good relationships a) with your referral partners, and b) with your customers. If you do a great job for someone who has been referred to you by a referral partner, then that referral partner will likely refer to you again.

If you do a good job for a customer, then they will likely refer their contacts to you too. Or you can incentivise your customers to refer you.

You might need to consult a marketing expert to help you develop a referral strategy, but you should view doing that as a business investment because your business could reap high rewards.

In an article published by AdAge, they reported that businesses who cut their marketing spend during previous economic downturns lost market share and never regained it. They also went on to say that those businesses who continued with, or increased their marketing spend, lost less market share and recovered quicker once the downturn had ended (6).




Build your cash reserves to cover at least three months of trading expenses.

Soften the blow to your business if cashflow slows or if a customer goes into administration owing your business outstanding payments.

Clear what you owe and stay on top of your bills.

Relieve pressure and free-up cash for other important areas of your business.

Take greater control of the money your business is owed.

Improve your cashflow. Ensure you are providing products and services to a trustworthy book of customers.

Reduce your spending and overall costs.

Reduce your risk by holding less stock. Free-up cash for other important areas of your business.

Look for new opportunities and diversify if possible.

Expand your appetite and win new business and grow a new customer-base. Take advantage of new revenue streams.


Stronger relationships with suppliers and business partners. Increase revenue via referrals. Reduce overall costs.

Refine your advertising.

Gain market share. Create new business relationships. Strengthen existing business relationships. Increase revenue.

What action can small businesses take to support their staff?

Many large organisations already adopt staff wellbeing initiatives and staff benefits packages.

However, for many small businesses these types of staff welfare programs simply do not feature. This can be due to costs, lack of resources, lack of awareness by small business owners/employers, and even a negative perception of the costs by small business owners/employers.

It is important for business owners to remember that your staff make your business work. Your staff look after your customers. Sir Richard Branson was quoted as saying, “if you look after your staff they will look after your customers.” (7)

Looking after your staff does not simply mean ‘give them more money.’ There is a lot more to employee welfare that small businesses can do to look after employee wellbeing, such as flexible working, team social outings, regular 1to1 catch-ups, regular internal communication so employees know what is happening within the business and so they have ‘something they can buy into’.




Pay your staff the Real Living Wage (£10.90 per hour in the UK. £11.95 per hour in London), which is designed to meet ‘everyday needs’ such as the weekly shop, dental appointments, emergency car repairs (8).

Shows genuine support rather than the minimum requirement. Can help to reduce employee absence and even in-work poverty.

Adopt a flexible hybrid working policy wherever possible.

Can reduce personal and financial pressure on your staff e.g. by reducing childcare costs and commute costs.

Get to know your workforce. Use the data at your disposal to find out who your low income employees are and focus on helping them as a priority.

Increases the likelihood that any employees benefits will help those that need them the most. Will likely help reduce staff absence and discord and improve overall mood.

Avoid employee discrimination. Even your more experienced members of staff who earn higher salaries can have vulnerabilities.

Will likely reduce internal divisions and resentment. Will show that all staff are valued.

Engage staff on a personal level as well as professional with regular 1to1 catch-ups and work socials.

Provides a clearer picture of who your staff are. Can help you identify potential issues early so you are better informed and equipped to help.

What can small businesses do to support their customers?

Getting to know your customers is vital for business success, regardless of how small or large your organisation is. If you do not know what your customers want, then how can you ensure that your products and services meet your customers’ needs?

If your products and services do not meet your customers’ needs, then they are not going to buy from you. It is that simple.

There are many ways in which you can find out about your customers. Surveys, online questionnaires and focus groups are all proven methods and in manty cases are relatively inexpensive to undertake, but the resulting information can prove to be priceless.

When the economy is struggling, your customers will need more support than ever, and some customers will be more vulnerable to the effects of the rising cost of living than others.

It is anticipated that water bills will rise in 2023, while mortgage rates and energy costs also continue to rise, and with fuel costs remaining high at the pumps (despite the price of oil dropping) this is serving to push up the price of food products. This all means that vulnerable customers, now more than ever, need targeted support from their products and services providers.

“Vulnerable” can mean many things, from financial hardship ¬(in their personal lives and professional lives) to mental or physical health concerns. All of which can exacerbated by the rising cost of living and unfortunately for some, not everyone is receiving the same level of support.

“The customer is always king” should be more relevant than ever before due to how competitive markets are now that a lot of business is conducted online. During an economic downturn, treating your customers like royalty should be your priority as it can yield financial rewards for a long time after the economy has recovered in the shape of enhanced loyalty and strong customer retention.




Find out your customers’ needs, especially those on lower incomes, via customer feedback surveys.

Improves your brand awareness and engagement while also proving your compassion towards your customers.

From your customer information, look to create products and services that meet your customers’ needs and that are genuinely affordable to provide more choice to those on lower incomes.

Displays genuine customer focus, which will improve your brand reputation.

Provide outstanding customer service.

“The customer is always king,” and during economic downturn your customers will need more help than ever. Provide outstanding support and reap the rewards of enhanced reputation and customer loyalty and referrals.

Agree manageable payment terms wherever possible to spread costs.

Enhanced brand reputation. Customer loyalty and retention.

Communicate regularly with your customers.

Enhanced brand awareness. Customer retention.

What action can small businesses take to support suppliers?

Your suppliers are just as important as your customers are for the success of your business. They may not provide you with revenue, but they do provide you with services and goods, they can refer business to you, and they can help you if your business is feeling the pinch.

Therefore, clear and regular communication, fair and prompt payment for goods and services, and collaboration where possible, are all vital to thriving when times are tough.




Keep up with prompt payment for goods and services that you order.

Reduces the likelihood of your suppliers becoming insolvent. Maintains good relationships.

Communicate regularly, especially if your own cash flow has slowed.

Strengthens relationships. Enables you to agree new (temporary) terms. Helps to build trust.

Meet with your supply chain to discuss how you can combine reduce your energy, fuel and resource usage.

Reduce costs for all concerned. Strengthen relationships. Improve the resilience of the whole supply chain.

Accessible business resources to help you thrive

There are many online resources that you can access to help your business and your employees, including:

Markel Direct Cost of Living Hub -

Find out more about the cost of living crisis and how to manage your business finances so that you can survive and thrive, and come out of the economic struggle with a stronger and leaner business.

The Markel Direct Cost of Living Hub can help you with your finances.

Markel Business Hub -

Markel’s membership portal containing advice pieces, articles, downloadable templates, to help you to run your business with greater efficiency.

An image of the online Markel Business Hub.

The Markel Business Hub can help you with your business operations.

P11. Make sure your business is adequately covered

Businesses of all sizes are affected by economic downturns. It remains important to make sure you continue to hold the correct levels of business insurance and maintain your monthly premium payments to protect your assets, including: your staff, property, equipment, cash, furniture, vehicles, your reputation, and of course your customers.

Do not be tempted to apply short-term budget cuts to your insurance, either by cancelling policies or reducing the levels of cover to reduce your premiums. If you do and something goes wrong you could inadvertently place your business in a worse position if you’re not adequately covered when a claim is made against you.

Some key insurances to protect your business are:

Office insurance – Policies available includes buildings and contents insurance, business equipment cover, and business interruption insurance, all of which combine to comprehensively protect your business from a multitude of risks.

Public liability insurance – An important type of insurance if your business deals directly with people, including your customers and your suppliers. The policy will respond to cover claims of accidental damage to property and claims that you caused an accident which caused an injury to someone.

Employers’ liability insurance – An essential form of cover to protect your staff. If you employ people you must hold this insurance by law with a minimum of £5 million of cover. Employers’ liability will cover claims from an employee who has suffered an injury or illness because of the work they do for you.

Professional indemnity insuranceProfessional indemnity claims can rise when money is tight as suppliers reduce their resources to cut costs and maintain profit margins. This can result in mistakes occurring, which can cost clients extra money to rectify, giving rise to claims of negligent work.

Legal expenses insuranceLegal expenses insurance can provide cover for legal fees incurred when defending claims that other liabilities insurances don’t. These can include employment disputes including awards of compensation; defending against criminal prosecutions; property disputes and landlord disputes; tax investigations; regulatory compliance such as data protection defence; jury service and court attendance costs; and contractual disputes.

During a recession there is likely to be an increase in debts due to late payments throughout the supply chain. Legal expenses insurance doesn’t specifically cover bad debts, but if there is a breach of contract in relation to goods and services then this can give rise to a legal expenses insurance claim.

If you hold a legal expenses policy with us, you have access to Markel Law Solicitors 365 days a year, 24/7. You also receive access to the online Business Hub, which contains many useful guides, legal document templates, and links to help you run your business more effectively.

Find out more about Markel Direct’s small business insurance at


Key takeaway points.

1. Help your staff, customers and suppliers as best you can.

2. Ask for help sooner rather than later.

3. Look to online resources and business contacts for guidance.

4. Do not spend more than is necessary on your business.

5. Do not purchase too much stock.

6. Recoup all the outstanding late payments you are owed.

7. Continue to advertise and market your business to gain market share.

8. Maintain clear and regular communication with your suppliers.

9. Ensure your business is adequately insured.

10. Do not fear the challenges, try and use them as motivation and opportunity to improve your business.

Thank you for downloading and reading our cost of living action plan. We hope you found some value in it.

Cover starting from £8 a month