Rising operational costs failing to dent SME confidence

The costs of running a business have continued to grow steadily throughout the first quarter, but it has failed to dent the confidence of the UK’s SMEs.

According to the Federation of Small Businesses’ (FSB) Small Business Index (SBI), the figure for Q1 of 20.0 represents its highest point since the final quarter of 2015.

It also highlights a massive increase from the figure recorded after the EU referendum last summer, when the SBI showed -2.9.

International trade has played a key part in driving confidence levels up – a net balance of 15.6% said export activity rose during Q1, while a net balance of 30.5% expect an increase in Q2.

Both figures represent the highest levels recorded on the SBI, with the FSB also recognising that SMEs who export generate larger turnover than those that who just deal domestically.

The positive outcomes of the SBI come despite a net balance of 64.5% of firms reporting a rise in operating costs during Q1.

Of the increases, fuel and labour costs were the most commonly cited, named by 36.8% and 35.9% of those questioned respectively.

Costs associated with the exchange rate were also named as a concern by 26.9% while it is claimed FSB employers will see auto-enrolment, National Insurance contributions and the National Living Wage push up their employment costs by an average of £2,600 annually.

Rising inflation has exacerbated the situation, as firms are faced with higher prices when looking to purchase goods and services, while also influencing business rates.

For small businesses operating on tight margins, this can influence cash flow and may lead to late payments, debts and even potentially entering administration.

These mounting cost pressures are limiting growth plans and FSB chairman Mike Cherry has suggested that a “higher number of businesses” have said they will downsize or close in the coming 12 months.

A range of alternative finance options has helped to ease the burden being faced by many smaller firms, while those wishing to undertake an independent business review to see if there are aspects of business that can be improved.

By Phil Smith

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