Rising business costs crippling small businesses

Small firms are being pushed to the wall by a vice of rising business costs, research finds.

Overheads have risen by almost a quarter over the past five years, and more than half (55 per cent) of small business owners now warn that their company will simply not survive much longer if costs continue to rise at current rates.

The study of 750 small businesses by the Centre for Economic and Business Research (CEBR) reveals that small business owners identify rising costs as the most significant threat to their company this year (78 per cent) and feel that the country has become an ‘unbearably expensive’ place to do business (81 per cent).

Jonathan Elliott, Managing Director of comparison site Make It Cheaper, which commissioned the survey says, ‘Rapid cost increases are placing the survival of small companies in jeopardy, and dampening the entrepreneurial spirit so crucial to economic recovery.’

The Business Cost Index, an inflation tracker for small business overheads, shows a 22.8 per cent rise in small business costs over the past 5 years, compared to the ONS’ Consumer Price Index increasing by 19.4 per cent over the same period. According to the Make It Cheaper research, businesses themselves report an overall average rise in business costs of 4.5 per cent year-on-year to July 2011.

In terms of individual overheads, the biggest risers predicted by the Index are transport costs, which are expected to rise 20.5 per cent, energy bills, forecast to grow 8.5 per cent and insurance premiums, set to rise 7.1 per cent in 2011.

More than two thirds (67 per cent) of firms have seen their profit margins hit by increasing costs over the past three years, to the tune of 22 per cent on average, whilst approaching half (46 per cent) have been forced to increase prices and nearly a quarter (22 per cent) have cut staff.

Some 59 per cent of small business owners claim that the high cost of doing business in the UK is acting as a disincentive for growth, whilst 86 per cent believe it is damaging the economic recovery.

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