Small Business costs rising at Twice Rate of Inflation
The Business Inflation Guide (697k PDF) claims that UK small and medium–sized enterprises experienced a 9.9% increase during the period. This is more than double the national rate of inflation, which currently stands at 4.7%.
Micro–firms – those employing fewer than ten people – were the worst hit, according to the report. It suggests they experienced a 10% increase in costs between the second quarter of 2007 and the second quarter of 2008.
The report’s authors attribute the dramatic increase to an exceptional simultaneous price rise on two fronts: as energy and fuel costs have risen, so has the price of other products and services essential to the running of many businesses, notably raw materials, insurance and vehicle maintenance.
Warwick Business School’s professor of enterprise, Stephen Roper, said wider economic conditions meant businesses were unlikely to be able to absorb cost increases with price rises of their own.
“Small businesses, and particularly micro–firms, probably don’t have a lot of money in the bank to draw on and help them through difficult times,”
“They also don’t have any ability to raise their own prices without losing customers, particularly at the moment when everyone is very sensitive to price rises.
“So for many of those firms, there is a big profit squeeze as a result of this inflation. Instead, small firms should be looking to make operational savings where they can”, he said. “For many small companies, energy usage is a big element of their costs bundle. They should be looking at energy efficiency, which could be something as simple as insulation or monitoring energy usage on the whole.””
The Business Inflation Guide research has been reinforced by credit–checking agency Creditsafe’s Annual report on SMEs: The punitive impact of business inflation. This suggests that a quarter of small firms experienced cost increases of more than 10% between March 2007 and March 2008. Creditsafe’s managing director Simon Camilleri said:
“Businesses are facing rampant business inflation, as the costs of fuel and borrowing increase dramatically. If the business inflation continues to rise, we may see thousands of businesses forced to lay off workers, put a brake on expansion plans and even struggle to survive.”