Perfect storm for SMEs as inflation could add £6.8 billion to costs

2017 is likely to be a tough year for businesses, with an increase in business rates being introduced while revenues are expected to remain stagnant.

SME costs could go up by £6.8 billion as inflation is forecast to rise by 2.7 per cent this year, furthermore, 756,000 (14 per cent) businesses expect their revenues to shrink this year, and over three million (57 per cent) expect them to stay the same.

The findings are from a new report from leading commercial insurer RSA, titled Economic Imperative, which shows that 2017 is likely to be a tough year for businesses, with stagnant revenues meaning that an expected inflation in costs is likely to eat into their profit margins, hindering their growth.

The impact on the UK economy could be significant, given that the businesses that expect their revenues to shrink have a collective turnover of approximately £252 billion.

Revenues are likely to take a hit due to an expected slowdown in consumer spending, while increasing costs are likely to be driven by the rising price of imported goods, an increase in business rates, auto-enrolment and the apprenticeship levy.

Additionally, around 2.1 million (39 per cent) of the UK’s 5.4 million SMEs see rising business costs as a top three risk to their business.

The findings come at a time when more than half (51 per cent) of SMEs think that the government is not doing enough to help them grow.

This expected deterioration of business conditions is likely to be exacerbated by the increase in business rates in April. The average shop will see business rates rise by 8.4 per cent while those in central London could see increases of as much as 100 per cent.

Russell White, schemes and deals director, commercial risk solutions at RSA, says, ‘The business environment is expected to become much harsher in the coming year, and it’s crucial that businesses plan ahead to ensure that they are prepared. The government also has a role to play by considering ways through which it can mitigate the negative effects that increasing business costs could have on the economy.

‘One solution could be increasing the small business rate relief threshold so that it includes properties with a rateable value below £20,000 rather than £12,000. Employing such a strategy could result in the government generating more money than it would have done in the long run by boosting business growth.’

How can businesses prepare for the coming years?

Business Plan

Regularly review your business plan to ensure it is up-to-date and fits in with the current market environment.

Cash Flow

Review your business cash flow and access to capital. This will allow you to check how much headroom you have and whether more should be done to put your business in a stronger position and make it more able to cope with dips in revenue, rising costs or unexpected bills.

Monitor the market

Keep up-to-date with economic forecasts and current trends so that you can identify and quickly adapt to any changes in the market.

Review Costs

Spring clean your costs and reduce any unnecessary payments for 2017.

Speak to an adviser

A financial adviser can review your business, assess your risks and recommend a number of options which could potentially help to boost growth and weather any financial shocks which may occur in the future.

See also: Costs are one of the biggest struggles for businesses

Related Topics

Inflation

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