Wylie & Bisset urges SMEs to raise prices in face of rising costs and supply chain uncertainty

Chartered Accountants Wylie & Bisset is advising SMEs to consider raising prices in the face of a rising cost burden coupled with supply chain uncertainty.

Scottish firms raised prices last month at the sharpest rate since 1999 in the face of severe inflationary pressures with the latest Royal Bank of Scotland purchasing managers’ index suggesting companies were having to pass on the rising costs of materials, pay, logistics, Covid and Brexit. Cost burdens were reported to be rising at their quickest rate since 2008.

Catherine Livingstone, partner and head of the business advisory services team at Wylie & Bisset, said: “Not only are many SMEs confronting significant increases in operating costs, but many are also struggling to source materials, particularly those in the construction and related industries, as well as a shortage of human resources.”

She points out that a pressing problem is that many firms tender for work far in advance, based on current prices, but that volatile and unforeseen significant price fluctuations can risk wiping out any profit margin.

“I’ve been advising clients to be mindful of the tender process because prices are so volatile and many have required to increase the prices they have quoted in a tender in order to cover their higher operating costs,” she said.

“It is vital that SMEs seek the flexibility to renegotiate or allow for some protection or contingencies against unpredictable rises in material costs in tenders if they possibly can. That said, many of their clients will no doubt struggle to pay more than the original tender quote so it’s a difficult situation.”

And while earlier this year there was a growing trend among SMEs to buy local in response to Brexit making it more difficult to source some materials, Ms Livingstone notes that many SMEs have been forced to source materials from further afield as a consequence of local suppliers having raised their prices.

“Some of my clients have had to switch to buying goods and materials from south of the border because they can secure it at a more cost-effective price and can offer a more reliable service,” she said. “That represents a complete switch to how they had operated previously.”

She advises SMEs to examine these issues carefully and consider the impact on cashflow because any rise in operating costs coupled with an inability to increase prices will exert pressure on cashflow so that, where possible, greater working capital in the bank would be advisable to help meet any hikes in operating costs.

“SMEs need robust budgeting processes and procedures in place to ensure they can generate sufficient profits from any work they carry out,” she said.

“It’s not easy, but it’s essential if they are to successfully navigate a way through the present difficulties.”