In April 2025, the UK Government implemented another significant increase to the National Minimum Wage. But what do these increases mean for SMEs?
While this move is intended to support lower-income workers during a cost-of-living crisis, it has created intense pressure for many small and medium-sized enterprises (SMEs) already grappling with thin profit margins, rising costs, and economic uncertainty.
In this blog, we’ll explore what these wage increases mean for SMEs, how they can impact financial stability, and - most importantly - what struggling businesses can do to avoid insolvency.
So, if your business is feeling the strain, McAlister & Co is here to offer expert business insolvency advice tailored to your unique situation.
Understanding the Minimum Wage Increase
In April 2025, the National Living Wage (NLW) rose to £12.21 per hour. For many SMEs, particularly those in hospitality, retail, and care sectors where wages form a large portion of operating costs, this has led to immediate and substantial financial repercussions.
While larger corporations may have the resources to absorb these changes, SMEs often do not. Many now face the difficult choice between cutting costs, reducing staff hours, or increasing prices - each of which comes with its own risks.
How Wage Rises Are Driving Financial Pressure
Let’s be clear: paying a fair wage is essential and should be a long-term goal for all businesses. However, the sudden and sharp increase is proving unmanageable for some SMEs. Common issues include:
Cash Flow Crunches: A significant hike in payroll can rapidly deplete working capital, especially for businesses already behind on tax payments or supplier invoices.
Reduced Profit Margins: For SMEs with fixed pricing models, increasing wages eats into already tight margins, making profitability harder to achieve.
Operational Cuts: In an attempt to balance the books, some businesses are cutting staff, reducing hours, or scaling back operations - moves that can harm service quality and future growth.
Increased Risk of Insolvency: When rising wage bills are coupled with inflation, late customer payments, or high energy costs, insolvency becomes a very real risk.
Insights from the JIEB and Corporate Insolvency reports further confirm that businesses often fail to plan adequately for such financial shocks. Many leave it too late to seek advice, missing critical opportunities for early intervention.
The Warning Signs of Insolvency
If your business is struggling due to wage cost increases, it’s crucial to recognise the warning signs of insolvency early:
- Constant cash flow problems or maxed-out overdrafts
- Difficulty paying HMRC or suppliers on time
- Staff wage payments being delayed
- Increased creditor pressure or CCJs
- Directors funding the business from personal finances
If any of these sound familiar, now is the time to seek expert business insolvency advice.
Expert Business Insolvency Advice from McAlister & Co
At McAlister & Co, we understand the unique challenges that SMEs face. We are not here to judge, we're here to help. There are a number of formal and informal insolvency solutions available that could help your business recover, restructure, or exit gracefully.
1. Business Review and Cash Flow Planning
The first step is understanding your true financial position. We’ll help you assess your income, expenses, liabilities, and assets so you can make informed decisions. This includes scenario planning around future wage increases or cost surges.
2. Time to Pay Arrangements with HMRC
If wage increases have caused you to fall behind on tax payments, a Time to Pay (TTP) arrangement with HMRC may be possible. This allows you to repay arrears over time, easing cash flow pressure.
However, when it comes to TTP arrangement, it’s important to act fast - these are much easier to arrange before enforcement action begins. Read more about negotiating Time to Pay arrangements with HMRC in this helpful blog.
3. Company Voluntary Arrangement (CVA)
A CVA can be a lifeline for viable businesses struggling with debt. It allows you to repay creditors over a fixed period while continuing to trade. This option can also help you manage wage-related financial stress while preserving jobs and business continuity.
Not sure whether a CVA is the right option for you? Learn more about the process of applying for a CVA here.
4. Pre-Pack Administration
If your business is no longer viable in its current form, pre-pack administration could be a solution. This involves selling the business and its assets to a new company - often controlled by the same director - free from historic debt. Essentially, it gives you the chance to wipe the slate clean and start again.
5. Business Turnaround Support
Sometimes, all you need is a fresh strategy. With years of experience in providing business insolvency advice, we offer business turnaround services to help you review operations, cut costs, and find new financing options.
Whether it’s revisiting pricing models, renegotiating supplier terms, or securing short-term funding, we’ll help you find a way forward.
Don’t Wait Until It’s Too Late
The increase in minimum wage is a step towards fairer pay - but for many SMEs, it’s also a tipping point. If your business is under pressure, the worst thing you can do is ignore the problem. The earlier you seek advice, the more options you have.
At McAlister & Co, we’ve helped hundreds of SMEs across the UK navigate financial difficulty and come out stronger. If you need trusted, solutions-focused business insolvency advice, contact our expert team today.
Need help navigating the impact of wage increases on your business? Contact McAlister & Co for confidential business insolvency advice.