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October 10, 2014

Cost of doing business rises 3.1% above inflation

Cost of doing business rises 3.1% above inflationSmall business running costs have continued to rise during 2014 despite the fall in inflation. The biggest increases, according to new research, are being seen in marketing, energy, transport and staff.

The annual Cost of Doing Business survey is conducted among members of the Forum of Private Business (FPB). The 2014 survey shows that small firms are facing rising costs that they can’t pass on to customers, despite signs of economic recovery.

While annual inflation has continued to fall from 2.7% to 1.6%, the survey found that prices have risen by 4.7% for SMEs – 3.1% ahead of inflation.

The results show that 63% of businesses have seen an overall increase in their business costs, with 70% of firms reporting an increase in energy costs, 65% in transport costs, 76% a rise in marketing costs and 65% a rise in staff costs.

In addition, 38% of small business owners said that they were unable to pass any rising costs on to customers, forcing them to cut their own costs to keep prices static. Just 3% were able to pass on costs in full.

Looking ahead, 82% of business owners expect prices to continue to increase and 16% anticipate a “significant increase”. Exacerbating factors included late-paying customers (55%) and competitors offering products below cost price (47%).

The impact of rising costs is being felt across the small business sector. The survey found that 81% of firms said rising business costs have been detrimental and 73% have had cash flow issues as a result. More than half of those surveyed said rising costs had dampened their growth and recruitment plans.

Phil Orford, FPB chief executive, said: “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.”

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