Having experienced largely unchanged or decreasing interest rates over the last ten years, this month saw the first increase in interest rates by the Bank of England. While the increase is small – from 0.25% to 0.5% – it can still have an impact on businesses in a range of ways.
The decision will be one seen as a positive for individuals and businesses with savings in the bank, although so far, the banks seem to have been a little slow to pass on the increase to these people. On the turn side, anyone borrowing money, not on a fixed rate could face an increase, although the small increase in the interest rate shouldn’t cause panic.
For businesses, the first reason that interest rates can affect them is the change in consumer habits, especially for B2C businesses. If people fear that their mortgage will increase, they may cut back on spending. Even B2B businesses can see a drop off in new orders as their B2C customers become cautious.
The interest rate increase can affect businesses if they have any kind of borrowing themselves – loans or company credit cards are two of the most common types. There is the strong chance that these will see an increase in interest rates in line with the overall rate and this means the cost of borrowing increases.
For the smaller business where the company and the individual are closely tied up, the increase in personal borrowing and business borrowing can create a worrying position with cash flow within the business.
Cash flow and payroll
This is definitely a time to work with an accountant and closely examine the business incomings and outgoings to ensure cash flow is still going to be fluid if the worst happens and there is a drop in customer orders or an increase in borrowing costs. It is important to make sure that your business can continue to be solvent until things start to pick up again.
This concept of cash flow is closely tied up with payroll and again, working with a payroll expert at this time is important. You may need to make hard decisions about the pay rises that you had planned for your staff – there might not be the money in the short term to go ahead with them as promised.
You may also have to carefully consider any plans to bring new staff into the business at this time. Work with professionals to make sure all the decisions you make in light of the interest rate change are going to help your business going forward.
The interest rate itself is relatively small but the effects it has are much larger. It is an important time to take an assessment of the financial position of the business and ensure it is on a strong footing to protect you and your staff. If you’d like any assistance or professional advice regarding your payroll services, then please get in touch with Trace Payroll using the details below.