Five key challenges facing businesses in 2018

A number of testing issues face businesses in 2018. Rising operational costs are a key feature that could cause businesses to revisit or rethink plans for strategic growth, but general uncertainty surrounding the impact of Brexit may also have a negative impact.

Here are five of the key challenges that businesses will be facing in 2018.

1. Post-referendum inflation increases and a weaker pound

A unique challenge to be faced by businesses in 2018 is dealing with the consequences of our exit from the European Union. Since the 2016 referendum, the fall in the value of sterling has caused inflation to rise – the subsequent increase in import costs adversely affecting operational and strategic plans for some businesses.

Although inflation is expected to level out, the post-referendum uncertainty on future trade with Europe makes it difficult for businesses to plan ahead with confidence, and reluctant to make new capital investment.    

2. Rise in the National Living Wage (NLW)

National Living Wage (NLW) rates have increased operating costs, and adversely affected profit levels for many businesses. From April 2017, workers aged 25 and over (apart from apprentices) should receive £7.50 per hour - previously £7.20 per hour, with a predicted increase to £7.90 in 2018.

The British Chambers of Commerce (BCC) Workforce Survey, 2017, shows that, of the 1,400 businesses surveyed:

The Office for National Statistics (ONS) predicts that businesses operating in the accommodation and food service industry will be most affected by National Living Wage increases, having the highest number of lower paid workers before the rises.

3. Workplace pension auto-enrolment

Pension auto enrolment brings with it specific challenges for businesses in 2018. The BCC research shows that 75% of businesses have suffered increased costs due to pension auto-enrolment, with 23% specifying a “significant increase.”

These rising employment costs are likely to affect recruitment plans and stunt growth as businesses strive to control their operating costs. The issue of remaining profitable whilst also competitive in the market is proving a key challenge, and with the predicted NLW increases, one that’s not likely to diminish in 2018.

4. Rising business rates

The increase in business rates following the 2017 property revaluation, has affected businesses in some areas of the country, notably London and the south-east. This has not only damaged plans for growth and development, in some cases it’s caused a rapid financial decline. This situation is likely to continue in 2018, as businesses cope with additional economic factors, including inflation.

Furthermore, it could create problems for commercial landlords if their tenants cannot meet these additional financial demands, introducing a ‘domino’ effect for suppliers and other connected businesses.

5. Interest rate rise

Although the recent interest rate rise was relatively small, businesses need to consider the possibility of further increases in interest rates during 2018, and the subsequent rise in the cost of borrowing and finance.

Depending on their current situation this could curb plans for growth, particularly considering other increased operating costs and financial challenges to be overcome next year. If interest rate rises increase the value of sterling, although making imports more competitive, this would impact negatively on companies that export their products.

If your business is experiencing financial decline, whether as a result of these issues or other challenges, call one of the team at Real Business Rescue. We are a major part of Begbies Traynor, the largest UK professional services consultancy, and will provide the expert guidance you need. We operate across the UK, Over 70 UK Offices and offer a free same-day consultation.