Rising business costs crippling UK enterprise

A study by Make It Cheaper and the Centre for Economic and Business Research shows small firms are trapped in a vice of rising business costs.

  • 55% of small businesses fear for their survival if costs continue to escalate
  • 23% rise in small business overheads since 2005, according to Cebr
  • Cost inflation limiting the growth of three quarters (74%) of small firms.

Small firms are trapped in a vice of rising business costs, which is squeezing margins, choking growth and threatening their survival, according to a major new study by Make It Cheaper and the Centre for Economic and Business Research (Cebr).

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

Jonathan Elliott, Managing Director of Make It Cheaper, comments: "Rapid cost increases are placing the survival of small companies in jeopardy, and dampening the entrepreneurial spirit so crucial to economic recovery."

The study is based on independent research among owners and managing directors of 750 UK small businesses commissioned by business saving advisor Make It Cheaper, supported by macroeconomic modeling by Cebr.

All rise: Make It Cheaper and Cebr map business cost inflation

The vast majority of small business owners identify rising costs as the most significant threat to their company this year (78%) and warn that the country has become an 'unbearably expensive' place to do business (89%).

Cebr and Make It Cheaper have modeled an inflation tracker for small business overheads - the Business Cost Index.

The Index shows a 22.8% rise in small business costs over the past 5 years, and businesses themselves report an overall average rise in business costs of 4.5% 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%, energy bills, forecast to grow 8.5% and insurance premiums, set to rise 7.1% in 2011.

Spiraling overheads hit SME growth and margins, forcing closures

Rising costs over the past five years have damaged the growth of three quarters (74%) of small UK firms, and will limit the growth of 78% this year, according to the Make It Cheaper research.

More than two thirds (67%) of firms have seen their profit margins hit by increasing costs over the past 3 years, to the tune of 22% on average, whilst approaching half (46%) have been forced to increase prices and nearly a quarter (22%) have cut staff.

Worryingly, three fifths (59%) of small businesses owners claim that the high cost of doing business in the UK is acting as a disincentive for growth, whilst 86% believe it is damaging economic recovery.

Jonathan Elliott comments: "Government policy needs to curb business cost inflation this year. However not all threats identified by entrepreneurs are outside of their control.

"By shopping around, comparing prices, regularly switching suppliers and taking care not to get caught in contract renewal traps, companies can go a long way to bringing their overheads, such as energy, under control."

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About the research

The Business Cost Index is based upon historical price indices published by the Office for National Statistics for labour, physical input & materials, telecoms, insurance, transport, energy and financial services. Supplementary historical price indices have been provided for rents using Cebr's Commercial Property model. Forecasts for 2011 to 2012 are based on Cebr's in-house UK Macroeconomic Model.

Economic modelling was supplemented by opinion research among owners and managing directors of 750 UK small businesses (with less than 20 employees), commissioned by Make It Cheaper and carried out by independent market research agency Coleman Parkes.

About Make It Cheaper

Established in 2007, Make It Cheaper is the number one destination for businesses to get a better deal on their utilities and business services. Based in Central London, Make It Cheaper receives more enquiries and arranges more new contracts than any other business price comparison service. These include the business customers of most of the major domestic price comparison services with whom Make It Cheaper has partnerships, as well as business membership organisations, charities and trade associations. Acting on behalf of all these customers with total impartiality and free of charge, Make It Cheaper offers year-on-year savings across a range of products including business electricity, business gas, insurance and telecoms. Using its expertise and scale in the SME market, Make It Cheaper will typically save its customers over 30% of costs as well as a considerable amount of time that they can then spend on running their businesses.

Make It Cheaper was recently a finalist for 'SME of the Year' at the National Business Awards, 'Young Company of the Year' at the CBI's Growing Business Awards and 'B2B Customer Service Team' at the National Customer Service Awards.

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