Inflation pushes SME costs up a quarter

Rising inflation has resulted in ten per cent of small businesses seeing their costs rise by more than a quarter in the last 12 months, according to credit rating firm Creditsafe.

The research from Creditsafe also revealed that 26 per cent of small firms have seen their costs increase by at least ten per cent over the same period, and 60 per cent of small businesses have experienced some degree of cost increase in the last year.

“Businesses are faced by rampant business inflation, as the costs of fuel and borrowing increase dramatically,” said Creditsafe managing director Simon Camilleri. “They are also faced with the prospect of employees demanding inflation–busting pay rises to cover the costs of increasing petrol and food costs.

“If 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,” he said.

Camilleri added that the cost increases could have a dramatic impact on the profitability of small businesses if they are unable to pass them on to their customers.

“SMEs need to maximise their efficiency in order to cushion the impact of cost increases. They also need to make the most of economies of scale – their costs will decrease as the size of orders increases.”

Association of Chartered Certified Accountants (ACCA) spokeswoman Rosana Mirkovic, added:

“Keeping costs under control demands a strong head, and a realistic attitude to where savings can be made. SMEs should be doing this on a regular basis anyway, it’s just good business sense, but given the current economic climate, it is now a priority”.

“Reviewing where they can become more efficient is the first step,” she added. “Look at energy bills, staff costs, overheads and supplier costs. Credit check suppliers and do not be put off from making difficult decisions.

“If the decisions are too tough, then small businesses should consult a chartered certified accountant or their business banking adviser,” said Mirkovic. “But the main message is don’t ignore your business’ costs and their immediate and future impact.”

According to the Confederation of British Industry (CBI), the rate of inflation is likely to exceed three per cent for the rest of 2008, peaking at 3.8 per cent in the third quarter. The CBI also forecasted that the UK economy would grow at the slowest rate for 17 years in 2009.

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