As business owners face a challenging 2025, rising costs, increasing taxes, and global competition are at the forefront of their concerns. Two-thirds (66%) of small business leaders believe the UK is falling behind other global economies, highlighting the growing uncertainty. Joe Phelan, money.co.uk business credit card expert, explains how small business owners can protect their margins during this tough time.

“According to research by iwoca, one of Europe’s largest SME lenders, 42% of business owners cite mounting running costs as their top concern, while 40% are worried about rising taxes and government policies. Inflation, energy prices, and raw material costs continue to put pressure on already tight margins," explains Joe.

"Despite these challenges, business owners remain resilient. A substantial 71% expect growth in 2025, while over half (55%) plan to expand their workforce."

"This optimism reflects the sector’s determination to push ahead with growth strategies, even amidst economic uncertainty."

So, how can businesses navigate this complex landscape, protect their margins, and continue to grow in such a difficult economic environment?

1. Focus On efficiency

   SMEs can’t afford to overlook the importance of cost control. Rising operational costs can quickly erode profitability, so identifying areas to cut back without compromising quality is key.
   

   Take a detailed look at your business’s expenditure and identify non-essential costs that can be reduced or eliminated. For example, renegotiating supplier contracts, reducing energy consumption, or outsourcing functions to save on labour costs are all effective strategies to streamline your operations.
   

2. Embrace Tech And Automation

   Technology can significantly boost efficiency and help manage costs. By using tools like accounting software that tracks expenses in real-time or automated CRM systems that reduce manual data entry, you can streamline operations and cut down on time spent on routine tasks.
   

   Automation also frees up valuable resources, allowing you to focus on growth-driven activities such as marketing or product innovation.
   

3. Increase Pricing (but do it strategically)

   Strategic price adjustments may be necessary to protect margins, but they need to be carefully considered. It's important to communicate the value of your products or services clearly, ensuring that customers understand why the price increase is justified. Adding new features, improving service levels, or offering bundled packages can help customers feel they are receiving more value.
   

4. Explore New Revenue Streams

   Diversifying revenue sources can help cushion the impact of rising costs. Expanding your product offering, targeting new customer segments, or introducing subscription-based services can all be effective ways to generate additional income. Looking to international markets can also be a valuable strategy, especially if your domestic market is saturated or highly competitive.

   
   

5. Leverage Financial Products

   While cutting costs and diversifying revenue streams are vital for navigating economic challenges, financial products that improve cash flow can also play a crucial role in protecting margins. For example, business loans or credit lines can provide the necessary working capital to manage fluctuations in cash flow.
   

6. Consider Cash Flow Management Tools

   Effective cash flow management is essential to sustaining business operations. Tools that help predict cash flow gaps or manage invoicing more efficiently can offer valuable insights and ensure you’re able to handle unexpected challenges. By optimising your cash flow processes, you can improve your financial health and ensure that you're in a strong position to manage rising costs.
   

7. Tap Into External Support For Innovation And Growth

   You and your business could also benefit from external support aimed at fostering innovation and accelerating growth. Initiatives like Innovate UK provide businesses with resources, funding, and advice to help unlock their potential and compete more effectively in the market.

   Innovate UK’s initiatives, such as Innovate UK Business Connect, help businesses form valuable partnerships with researchers and other organisations, sparking innovation and creating new opportunities. By leveraging external resources, you’ll be well placed to navigate challenges more effectively and position your business for long-term success.

The Bottom Line

While the road ahead for some businesses will be bumpy, it’s not without opportunity. By focusing on cost efficiency, embracing technology, and leveraging financial products like business loans and savings accounts, businesses can put themselves in the best position to weather the economic storm and emerge stronger in 2025.

"Despite the macroeconomic challenges, many SMEs are showing resilience and determination to grow."

"With the right strategies and tools in place, businesses can continue to expand and thrive, regardless of the wider economic climate.”