A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Insolvency and the Cost of Living Crisis
The cost of living crisis - driven by rising prices for energy, food, and essentials - affects businesses as well as individuals. It reduces consumer spending, pushes up business costs, and increases financial pressure across the economy.
Understanding the link between the cost of living crisis and insolvency helps businesses anticipate risk and act early.
How the Cost of Living Crisis Affects Businesses
Reduced Consumer Spending
As households spend more on essentials, they have less for discretionary purchases. This hits retail, hospitality, leisure, and other consumer-facing sectors, reducing revenue.
Rising Business Costs
Energy, materials, and wages all rise with inflation. Businesses on fixed-price contracts or thin margins find their profitability eroded quickly.
Wages Pressure
As the cost of living rises, employees need higher wages just to get by. This increases costs for businesses already under pressure.
Credit Tightening
As defaults rise, lenders tighten credit, making it harder and more expensive for businesses to borrow. Facilities may be reduced or withdrawn.
The Effect on Insolvency
These pressures combine to increase insolvency risk. The Insolvency Service's statistics have shown elevated corporate insolvency levels during periods of cost of living pressure, particularly in exposed sectors.
How to Protect Your Business
- Monitor cash flow closely and forecast regularly
- Review pricing to recover rising costs where possible
- Reduce non-essential costs
- Strengthen credit control - chase invoices promptly
- Diversify to reduce concentration risk
- Take advice early at the first sign of difficulty
Personal Insolvency
The cost of living crisis also drives personal insolvency. Individuals struggling with rising costs may need help with personal debt solutions - a Debt Management Plan, an IVA, or, in serious cases, bankruptcy.
Speak to a Licensed Practitioner
If the cost of living crisis is putting pressure on your business or your personal finances, our Manchester-based practitioners will assess your position honestly and advise on the best route - free and confidential.