Business costs rising 3.1% ahead of inflation

The Forum’s latest Cost of Doing Business survey, carried out among its members, shows firms are still feeling the squeeze despite signs that the economic recovery continues to gather momentum.

The results showed that 63 per cent of businesses have seen an overall increase in their business costs. 70 per cent of businesses reported an increase in energy costs, 65% in transport costs, 76 per cent a rise in marketing costs, and 65 per cent a rise in staff costs.

The report also identified that 38 per cent 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 3 per cent were able to pass on costs in full.

Phil Orford MBE, the Forum’s Chief Executive, said: “The major reasons for increases in prices are predominantly down to transport and energy prices rising. The economic outlook continues to improve but costs still remain an issue for our members and a key focus of our lobbying and support services.

“This is a timely reminder that despite all the talk of a need for above-inflation wage rises businesses continue to feel the strain of rising costs. With the auto enrolment of staff into pension schemes just around the corner, the affordability of significant wage rises coupled with increased pension contributions will be called into doubt.”

While annual inflation has continued to fall from 2.7 per cent to 1.6 per cent the research also found that prices have continued to rise faster for micro, small and medium-sized employers at 4.7 per cent, although this is less than the 6 per cent figure reported by the Forum last year in research into business costs, suggesting things are slowly improving.

81 per cent of firms indicated that rising business costs have been detrimental to their business. 73 per cent have had cash flow issues as a result and it has had detrimental effect on 51 per cent of firms when looking to invest. 51 per cent also reported that it has been detrimental to employment levels and 63 per cent 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 SMEs to take full advantage of the signs of recovery, with an overwhelming 82 per cent of business owners quizzed expecting prices to continue to increase, and 16 per cent expecting a significant increase.

The most frequently cited exacerbating factors were customers paying late and competitors offering products below cost price. Excessive administrative demands forced on businesses by the government, banks and customers meant that 35 per cent of businesses have not been able to focus on business activities.

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