Rising business costs leave firms struggling

Annual study by Forum of Private Business claims costs are rising 3.5 per cent ahead of inflation

In news that will be of little surprise to many, 94 per cent of respondents to a Forum of Private Business (Forum) survey said that business costs have increased.

But the results also revealed that 41 per cent of small business owners questioned were unable to pass rising costs to customers, and were being forced to slash their own costs to keep prices static.

A very low two per cent were able to pass on costs in full.

The main money-suckers according to the respondents were: increased energy costs which garnered 87 per cent of votes; transport costs – 83 per cent; rise in marketing costs – 78 per cent; and an increase in the cost of raw materials/stock – 69 per cent.

Alexander Jackman, head of policy at the Forum, said: "The major reasons for increases in prices are 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 does not 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.”

And despite the drop in inflation from three per cent to 2.7 per cent, the research also discovered that prices have continued to rise faster for micro, small and medium-sized employers, at six per cent.

However, on a more positive note, the Forum’s own figures claimed costs had risen at 6.7 per cent last year, so the 2013 figure is a slight, but slow, improvement.

In addition, 81 per cent of respondents said that rising business costs have been "detrimental" to their business, with 73 per cent experiencing cashflow issues as a result, and 51 per cent reporting it had a direct effect on their investment plans. A further 63 per cent felt it had inhibited their plans for growth.

The most common exacerbating factors, according to the survey, were late payments (59 per cent), and competitors offering products below cost price (51 per cent). Changing payment terms had caused a problem for 24 per cent of businesses in dealing with suppliers, and 26 per cent in dealing with customers.

Jackman added: “As well as positive action on late payment we would like to see further steps to help small firms with business overheads. We’d like a freeze on business rates and small business multipliers next year. An extension of small business rates multipliers until the end of the current parliament would also be welcome and we would 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 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.”