SME's being hit by increased operational costs

Over half of the UK businesses in the small and medium enterprise (SME) sector are experiencing a significant increase in running costs with now. In a study by Close Brothers, they found that 59 per cent of businesses have a higher running cost now than they did 12 months ago, and that more than half of these businesses claim this is having a negative impact on their cash flow.

Of those businesses who are suffering, over a third of them have said they are unable to pass on these cost increases to their customers. They claim that an increase the prices of their products and services would make them less competitive, therefore are being forced to bear the brunt of higher operational costs themselves.

Where are cost increases happening?

Of the increases in operating costs, businesses cited the following areas as being the most problematic:

  • Energy bills: Two fifths of businesses stated that rising energy bills were the greatest problem for them.
  • Raw materials and stock: A quarter of businesses said that the rising cost of machinery, raw materials or stock for their businesses was making their already tight profit margins almost unbearable.
  • Rent, overheads and services: Rent costs are on the up, as are the costs of services such as broadband, security and even cleaners.

The cost of compliance

Another issue, which is making life in the SME market just as painful, is the huge cost of compliance. The Association of Accounting Technicians (AAT) recently published results of a survey which identified the SME market as bearing the brunt of tax compliance. Small businesses currently spend £9.9bn on tax each year, while bigger businesses contribute just £100m in total.

For the average UK SME, this equates to an average annual bill of £4,376 in compliance, compared to the large business average of £8,907. When you consider that 1.7m of the 2.25m businesses in the SME sector (75 per cent) have a headcount of fewer than four, it’s clear that the proportional impact is much greater.

Making savings

With many SME’s unable to pass on their cost increases to their customers, they are being forced to look for ways to reduce their operational costs. As many will already have increased efficiencies as a result of the 2008 recession, many may be looking for more innovative ways to remain profitable. These include:

  • Downsizing, or staying put: Moving is expensive, and so is renting out a premises that is too big for your needs. Even growing businesses are attempting to remain where they are to save money, adopting strategies like hot desking, remote working and virtual officing to keep their business thriving.
  • Outsourcing: Doing everything in house is not always the best way to save money, but neither is recruiting new staff who may be difficult to sustain during tough times. Outsourcing to self-employed contractors is a top way to get your job done, without the ongoing commitment of a permanent employee.
  • Supply chain shakeups: To get a better deal on their necessities, lots of SME’s are reviewing their supply chain to see where they can make savings. Buying consortiums and group deals are also on the rise, as small businesses club together to realise the power of buying in bulk.
  • Service reviews: From rent to mobile phone contracts, SME’s are realising that regular reviews of their service suppliers is necessary to maintain a good deal. This is particularly important in the business gas and electricity market, where rapidly fluctuating prices and tariff changes can mean good deals come around much faster than they realise.

Here at Simply Business Energy, we’ve helped SME’s all over the UK to save as much as 70 per cent off the cost of their gas and electricity renewal quote. If your business is facing increased running costs, and you’re looking for an easy way to save, talk to us today on 0800 313 4213. Alternatively, you can visit our quote page and fill in a few simple details to get a personalised quote and to compare offers from a range of energy suppliers. 

Read our energy and electricity saving tips for small businesses including hair salons, restaurants, food takeaways and pubs, clubs & bars.

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