New Year will see sharp rise in business costs
IF YOU thought you had successfully toughed out the ultra-tough trading conditions of 2009, the prospects look set to get a touch tougher yet.
Small business owners and traders should keep a tight hold on cash flow in the New Year, says MORE TH>N Business – because the cost of running a small business is set to increase.
A sharp rise in commodity prices is the culprit, according to the latest Business Inflation Guide (BIG) produced by MORE TH>N Business .
The quarterly inflation index says the cost of running a small business rose by 0.6% in Q3 2009 giving weight to claims that confidence is returning to the economy. But the BIG foreshadowed further cost rises to hit businesses in 2010.
The Business Inflation Guide showed fuel costs jumped by 3.42%, while raw material prices rose by 1.57% over the three month period. Meanwhile, gas prices fell by 16.99% and labour costs dropped by 0.22%. The overall impact meant manufacturing firms’ costs rose by 0.63%, while service firms saw a 0.55% rise over the quarter.
The BIG, developed in conjunction with Warwick Business School, is a quarterly index that measures a basket of 20 of the most important expenditure items for small businesses. In Q3 2009, the BIG recorded price increases in 12 of the 20 items.
Head of MORE TH>N Business, Mike Bowman, commented: “The results should come as good news to small businesses. The figures are a clear sign that growth is returning to the economy. However, the predicted sharp rise in commodity prices as we go into next year is likely to raise the cost of running a small business, perhaps more than market demand. As a result, it’s important that small business owners manage cash flow carefully as suppliers begin to push prices up again as markets revive. Business owners with a heavy dependence on heating, lighting and fuel are expected to experience the sharpest rise in costs.”
Stephen Roper, Professor of Enterprise at the Centre for Small and Medium Sized Enterprises, Warwick Business School, added: “We expect small business costs to rise sharply at least until Easter, when we predict prices will reach the same level as they were before the recession. While costs are on the up, the disappearance of deflation means markets are strengthening and consumer spending is growing. This all suggests we are now beyond the crisis, but small business owners must keep an eye on cash flow.”
Micro-firms – those with fewer than 10 employees – experienced price rises of around 0.6%, the same as the national average, but faired better over the year with costs down 2.6% compared to a year ago.
Overall small firms’ costs in Q3 2009 remain about 1.7% lower than a year earlier due to the deflation in late 2008 and early 2009, said MORE TH>N.
In comparison to BIG, the UK’s Consumer Price Index (CPI) currently sits at 1.9% and the Retail Prices Index is 0.3% (15 December, 2009).