Small companies hit by increased costs 

Small business costs have continued to rise during 2014 despite falling inflation, research finds. 

Small business costs have continued to rise during 2014 despite falling inflation, research finds. 

Energy costs are still the most commonly-seen increase, according to the latest Cost of Doing Business survey from the Forum of Private Business (FPB).

The study shows firms are still feeling the squeeze despite signs that the economic recovery continues to gather momentum.

Some 63 per cent of businesses have seen an overall increase in their business costs, with 70 per cent reporting an increase in energy costs, 65 per cent in transport costs, 76 per cent in marketing costs, and 65 per cent a rise in staff costs.

The report also identifies that 38 per cent of small business owners admit to being unable to pass any rising costs onto customers, forcing them to cut their own costs to keep prices static. Just 3 per cent are able to pass on costs in full.

FPB chief executive Phil Orford says the major reasons for increases in prices are predominantly down to transport and energy prices rising.

‘The economic outlook continues to improve but costs still remain an issue for our members and a key focus of our lobbying and support services,’ he adds. 

‘This is a timely reminder that despite all the talk of a need for above-inflation wage rises businesses continue to feel the strain of rising costs. With the auto-enrolment of staff into pension schemes just around the corner, the affordability of significant wage rises coupled with increased pension contributions will be called into doubt.’

While annual inflation has continued to fall from 2.7 per cent to 1.6 per cent the research also finds that prices have continued to rise faster for micro, small and medium-sized employers at 4.7 per cent, although this is less than the 6 per cent figure reported by the Forum last year in research into business costs, suggesting things are slowly improving.

Four fifths (81 per cent) of firms indicate that rising business costs have been detrimental to their business.

Almost three quarters (73 per cent) have had cash flow issues as a result and it has had detrimental effect on 51 per cent of firms when looking to invest.

Just over half also report that it has been detrimental to employment levels and 63 per cent feel that it has inhibited their plans for growth.

Despite the recent positive news on the economy, rising business costs could continue to restrict the ability of many SMEs to take full advantage of the signs of recovery, with an overwhelming 82 per cent of business owners quizzed expecting prices to continue to increase, and 16 per cent expecting a significant increase.

The most frequently cited exacerbating factors are customers paying late (55 per cent) and competitors offering products below cost price (47 per cent).

Excessive administrative demands forced on businesses by the government, banks and customers meant that 35 per cent of businesses have not been able to focus on business activities.

Further reading on managing costs

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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