High operating costs hit small firms hard

Operating costs of the UK’s network of small businesses are at their highest level for four years, driven by rising inflation.

It has led the Federation of Small Businesses to warn that many firms are now facing pressures to maintain trading.

With inflation currently at its highest rate since June 2013 – and above the Bank of England’s benchmark of 2% – basic costs have surged.

The FSB has said that many businesses have been forced to absorb the additional costs as a result, meaning they have less available finance to invest or to drive growth.

Inflation hit 2.9% in May, up from 2.7% a month earlier, according to the Office for National Statistics, leading FSB Chairman Mike Cherry to claim that support is “urgently needed” for small firms.

The latest additional operational costs follow the business rates evaluation in April when many small firms saw their outlays rise, increasing the threat of insolvency and financial difficulties in the process.

The FSB has also suggested that increases in the Employment Allowance and a freeze on fuel duty and Insurance Premium Tax may go some way to alleviating the pressures faced by small businesses.

Employment and utility costs were found to be among the main concerns for SMEs, with the later increasing coming despite a rise in renewable energy usage – 50% of the daily UK energy use came from renewables for the first time in early June.

Focusing on improving efficiency can help businesses to reduce their energy costs, with YouGov data revealing cost to be the main concern among businesses looking into the ‘energy trilemma’ – affordability, sustainability and security.

Some 47% of small firms see cost as the most important element, compared to 19% that prefer a focus to be on security.

The YouGov research, carried out on behalf of npower Business Solutions, questioned decision makers from UK businesses and found that Brexit is also influencing future plans.

Whereas 53% of firms reported unexpected costs as a result of the decision to leave the EU, 46% also said it makes it near impossible to plan any future activity.

Given the uncertainty and higher operational costs, many businesses have been forced to place a greater onus on financial security in order to safeguard their futures.

The threat of insolvency and liquidation has increased as a result, with businesses operating on even smaller margins and with very little room for error.

By Phil Smith


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