Since February, the ongoing conflict between the US and Iran has compounded the challenges faced by many SMEs, making trading conditions comparable to the COVID-19 era. Uncertainty about supply chains and fuel prices disrupted by the closure of the Strait of Hormuz have affected SMEs worldwide.   

“SMEs are operating in an environment of sustained uncertainty – many are still adjusting to higher interest rates, persistent cost inflation and more cautious consumer and business spending,” says Kieran Burge, Partner at DS Burge & Co. “For owner‑managed businesses in particular, cashflow pressure has become a defining concern rather than a short‑term issue.”

A February 2026 report from the House of Commons Business and Trade Committee found that many smaller retailers were struggling with high energy costs, late payments, criminal activity and tax burdens. 

Retailers face a perfect storm of cost pressures

Helen Dickinson, Chief Executive of the British Retail Consortium, says that increased costs caused by the Middle East conflict are feeding into supply chains: “While retailers will work with their suppliers to mitigate the impact on prices as far as possible, inflation will rise, although there are no indications it will reach the peaks of the last spike in April 2023.” 

“Labour remains costly and scarce; wage inflation, higher employer National Insurance and ongoing skills shortages mean payroll is absorbing an increasing share of turnover,” says Burge. “At the same time, compliance demands – from tax reporting through to employment and data obligations – continue to grow, creating a heavier administrative burden for businesses that often lack in‑house finance teams.”

Just Starting Out, a platform for new UK business owners, surveyed over 1,200 new and early-stage business owners across the UK. More than two thirds (68%) said that reduced consumer confidence is directly impacting their ability to generate consistent sales. Additionally, 61% reported that rising costs are their single biggest concern.

“At the same time, competition from large online marketplaces continues to intensify, making it increasingly difficult for SMEs to compete on price and visibility,” says Abi Hill, CEO of Just Starting Out.

Hill says cost management is absolutely fundamental: “margins are super tight, and there is very little room for error.” Her company’s research found that 72% of early-stage business owners are actively reviewing and reducing their business expenses on a monthly basis.

“With rising costs across supply chains, logistics, and day-to-day operations, even small inefficiencies can quickly erode profitability,” Hill explains. “At the same time, passing these costs onto customers is not always feasible due to price sensitivity.” She recommends SMEs take the following four cost control steps.