The cost of doing business

The cost of doing business

January 08, 2014 by Guest Blogger

Forum research suggests business costs rising 3.5% ahead of inflation

Business costs continued to rise during 2013, with energy costs still the most commonly seen increase among small businesses, according to the national business group, the Forum of Private Business.

The Forum's Cost of Doing Business survey, carried out among its members, shows firms are still facing an uphill battle to make ends meet, despite positive signs of an economic recovery as the infographic below demonstrates.

The results showed that 94% of businesses saw an overall increase in their business costs. 87% of businesses reported an increase in energy costs, 83% in transport costs, 78% a rise in marketing costs, and 69% a rise in the cost of raw materials/stock.

Worryingly, the report also identified that 41% of small business owners admitted to being unable to pass any rising costs onto customers, forcing them to cut their own costs to keep prices static. Just 2% were able to pass on costs in full.

Alexander Jackman, the Forum's Head of Policy, said: "The major reasons for increases in prices were 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.”

"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.”

While annual inflation continued to fall from 3% to 2.7%, the research also found that prices have continued to rise faster for micro, small and medium-sized employers at 6%, although this is less than the 6.7% figure reported by the Forum the previous year in research into business costs, suggesting things are improving – albeit slowly.

There was a significantly lower proportion of businesses concerned by credit restrictions last year, with a higher proportion seeing credit restrictions as having little impact on their operations. However, credit restrictions were still apparent, with 26% of businesses feeling they had less leeway in coping with business costs than they had the previous year.

81% of firms indicated that rising business costs had been detrimental to their business. 73% had cash flow issues as a result and it had a detrimental effect on 51% of firms when looking to invest. 51% also reported that it has been damaging for employment levels and 63% felt that it had inhibited their plans for growth.

Despite the recent positive news on the economy, rising business costs could continue to restrict the ability of many SME’s to take full advantage of the signs of recovery, with 83% of business owners quizzed expecting prices to continue to increase, and 16% expecting a significant increase.

The most frequently cited exacerbating factors were customers paying late (59%) and competitors offering products below cost price (51%). Excessive administrative demands forced on businesses by the government, banks and customers meant that 35% of businesses had not been able to focus on business activities. Changing payment terms had been a problem for 24% of businesses in dealing with suppliers, and 26% in dealing with customers.

“The findings suggest that 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.

“As well as positive action on late payment we’d like to see further steps to help small firms with business overheads. We’d like a freeze on business rates and small business multipliers in 2014. An extension of small business rates multipliers until the end of the current parliament would also be welcome and we’d like to see the government commit to undertaking independent research into business rates. While the Chancellor’s announcement of a fuel duty freeze at the Conservative Party Conference in 2013 was a welcome move, we feel that further action should be taken to investigate where further savings could be made across government to ensure that fuel duty is not raised again before the end of this parliament.” 

The cost of doing business - infographic and press release

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