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Alexander Jackman of the Forum of Private Businesses

Doing business is getting more expensive – report

The cost of doing business has continued to increase during 2013, with just two percent of businesses being able to pass on these costs to their customers in full, according to the latest Cost of Doing Business survey.

The report, by the Forum of Private Businesses, suggests that business costs have continued to rise during 2013, with energy costs still the most commonly seen increase among small businesses.

The Forum’s latest survey, carried out among its members, shows firms are still facing an uphill battle to make ends meet, despite positive signs of an economic recovery.

The results showed that 94 percent of businesses have seen an overall increase in their business costs. 87 percent of businesses reported an increase in energy costs, 83 percent in transport costs, 78 percent a rise in marketing costs, and 69 percent a rise in the cost of raw materials/stock.

And the report also identified that 41 percent 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 two percent were able to pass on costs in full.

Alexander Jackman, the Forum’s head of policy, 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 doesn’t 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.”

While annual inflation has continued to fall from three percent to 2.7 percent, the research also found that prices have continued to rise faster for micro, small and medium-sized employers at six percent, although this is less than the 6.7 percent figure reported by the Forum last year in research into business costs, suggesting things are improving – albeit slowly.

There is a significantly lower proportion of businesses concerned by credit restrictions this year, with a higher proportion seeing credit restrictions as having little impact on their operations. However, credit restrictions are still apparent, with 26 percent of businesses feeling they have less leeway in coping with business costs than they had last year.

Eight in ten firms indicated that rising business costs have been detrimental to their business. Almost three quarters (73 percent) have had cash flow issues as a result and it has had detrimental effect on 51 percent of firms when looking to invest. Half (51 percent) also reported that it has been detrimental to employment levels and 63% feel that it has inhibited their plans for growth.

Despite the recent positive news on the economy, rising business costs could continue to restrict the ability of many SME’s to take full advantage of the signs of recovery, with 83 percent of business owners quizzed expecting prices to continue to increase, and 16 percent expecting a significant increase.

The most frequently cited exacerbating factors were customers paying late (59 percent) and competitors offering products below cost price (51 percent). Excessive administrative demands forced on businesses by the government, banks and customers meant that 35 percent of businesses have not been able to focus on business activities. Changing payment terms had been a problem for 24 percent of businesses in dealing with suppliers, and 26 percent in dealing with customers.

“The findings suggest there significant action is still needed to tackle late payment, through strengthening the Prompt Payment Code to prohibit businesses from signing the Code if they have extended payment terms in the last 12 months. We would also like to see the government make it compulsory for PLCs to declare their annual payment time statistics in annual audits to support better payments.,” said Alexander.

“As well as positive action on late payment we’d 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’d 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.”