Cost of Doing Business Rises

The cost of doing business rises again according to the latest FPB reportData from the Forum of Private Businesses (FPB) shows that the basic cost of doing business has risen again…

The FPB’s latest Cost of Doing Business Survey has shown that costs have risen for businesses again in 2013 and are rising faster for SMEs than they are for the rest of society.

Whilst the rate of inflation has fallen from 3% to 2.7%, the actual cost of doing business is 3.5% higher than this figure and businesses are facing rising costs in excess of 6%

Energy costs were cited as one of the biggest reason for the increase in the cost of doing business and with five of the "big six" power companies raising their charges by an average of 8.1% recently, that’s put more financial pressure on small and medium-sized firms.

Even though there are signs that the economy might be in recovery, with house prices apparently on the increase and improved confidence amongst employers and certain industry sectors, the rising cost of doing business is still a concern.

To summarise the issues with increasing cost in the FPB report;

  • 94% of firms reported an overall increase in their business costs
  • 87% of businesses cited increased energy costs
  • 83% saw their transport costs increase
  • 78% of SMEs said their marketing costs had gone up
  • 69% reported a rise in raw material and stock costs

With the pressure of rising costs, many firms polled by the FPB stated that they were unable to pass on the price increases to their customers with 41% of businesses saying that they had soaked up the price increases themselves.

Only 2% of the firms questioned said that they had passed on their cost full increases by raising their prices to customers.

Other findings from the FPB report included:

  • 81% of firms saw rising costs as detrimental to their business
  • 73% of businesses indicated that they had suffered cash flow problems
  • 63% said that growth was affected by cash flow issues
  • 51% of firms with cash flow problems said it had affected their ability to invest
  • 51% of businesses believed restricted cash flow issues had affected employment levels

Late payers were cited as the main reason for cash flow problems (59%), with competitors selling below cost price being another major concern for over half of businesses (51%).

Alexander Jackman, the FPB’s Head of Policy, said of the report:

"The major reasons for increases in prices are predominantly down to transport and energy prices rising, coupled with the continued weakness of sterling for importers. The economic outlook may be better but costs still remain an issue for our members and a key focus of our lobbying and support services."

Jackman continued:

"Unfortunately, it doesn’t look as if there is going to be any respite from energy hikes any time soon, despite the ongoing political pressure to take action to introduce more competition in the market, with many of the major players recently announcing significant increases and others expected to follow suit."

On the issue of continuing late payment problems, Jackman concluded:

"The findings suggest there significant action is still needed to tackle late payment, through strengthening the Prompt Payment Code to prohibit businesses from signing the Code if they have extended payment terms in the last 12 months. We would also like to see the government make it compulsory for PLCs to declare their annual payment time statistics in annual audits to support better payments."

Additional measures suggested by the FPB’s head of policy were also mentioned such as seeing a freeze on small business rates and a promise by the Chancellor of the Exchequer not to further raise fuel duty in the current parliament.

Positive signs highlighted in the report showed that fewer businesses were concerned by restricted access to credit this year although 26% of the firms polled said that they still suffered from being unable to get finance.

The other positive news is that whilst costs for SMEs are up 6% this year, that figure is down from the 6.7% increases seen last year.

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