The spiralling cost of business and what this means for British SMEs
A new poll from the Forum of Private Business revealed a range of concerns recently that prompted forum chief executive Paul Orford to declare: "SMEs, already unfairly disadvantaged by rising costs and red tape, are held back from growing by bad business practices". But what are the specific problems, and how can SMEs respond?
Rising costs
Despite inflation falling from 2.7% to 1.6%, 63% of businesses told the forum they'd seen an increase in business costs during the year.
At a time when oil prices have been consistently falling, it's particularly surprising to see 70% of businesses reporting increased energy prices, and 65% a jump in transport costs. Equally frustrating is the disproportionate impact felt by micro, small and medium-sized companies.
Raising prices is one way to respond and, despite previous reluctance, one in five businesses are considering doing so. Alternatively, it's necessary to look at business practices, specifically how big businesses are squeezing small suppliers.
Supply chain abuse
In this year's 'Cost of Doing Business Report', 70% of businesses told the forum they'd had problems with late payment in the last 12 months.
52% of SMEs polled say they'll have to diversify their client base as a result, certainly a good way minimise the impact of unscrupulous payment practices. Setting strict policies for prompt, accurate and timely invoicing, regular reminders and an enforcement agent to support claims where necessary is essential to ensuring bullying is not encouraged.
In the long run, we agree with Guardian Finance correspondent Oliver Balch, who advocates small businesses uniting, either independently or through business organisations, to demand prompt payment and even threaten the withdrawal of services to force big business to change their ways.
Tax and legislation
Research published in the latest Western Union Business Solutions International Trade Monitor (ITM) this month found that 53% of SMEs were worried about international regulation and compliance: the first time ever that the figure exceeded 50%.
When asked which changes in government policy would improve their success, a simplified tax system topped the wish list for 87% of businesses, followed by greater tax relief for exporters (68%). New SBEE rules should improve tax and filing systems somewhat, but in the medium term this looks set to remain an issue.
Borrowing
If your business is facing any of the problems above, the chances are that matters are rapidly exacerbated by difficulties in securing cost-effective credit or, occasionally, securing credit at all.
Thankfully, most commentators are now predicting that the Bank of England won't increase rates until July 2016; so while the cost of loans will increase in the future, there's still time to diversify your credit to ensure your business isn't saddled with interest payments or unserviceable debts. Peer-to-peer lenders, equity investments and government lending schemes are excellent alternatives.
Meanwhile, as a new government slowly solidifies and begins the gradual process of forming and implementing (or discarding) its promises to SMEs, it's wise to focus on the things you can control, particularly improving cash flow, to mitigate the continued impact of those you can't.
