Business information firm, Creditsafe say one in ten firms have been affected by costs rising by more than a quarter during 2008. Continuing inflation is said to be making more and more SMEs vulnerable as profitability is severely affected.

Creditsafe’s annual report on SMEs entitled ‘The Punitive Impact of Business Inflation’, found that 10% of businesses have already experienced a 25% increase in running costs. They also identified firms with 11 to 25 employees as the most likely to suffer from ongoing increases in fuel and the cost of borrowing. Simon Camilleri, managing director of Creditsafe UK emphasised that rising expenses will inevitably impact on profit, particularly now that it is more difficult to pass costs onto customers.

He said: ‘If the business inflation continues to rise we may see thousands of businesses forced to lay off workers, put a brake on expansion plans and even struggle to survive’.

Staff wages account for 29% of business expenditure, with materials and stock amounting to 18% of cost. Taxation is the next biggest hitter at 16%, with fuel cost and rents and leases accounting for 10% and 7.5% of spending respectively.

The Association of Chartered Certified Accountants (ACCA) said that the pressure of keeping costs under control is immense for SMEs. Spokeswoman for ACCA, Rosana Mirkovic advised that SMEs should review their costs regularly and inspect opportunities where savings could be made. She said: “SMEs need to maximise their efficiency in order to cushion the impact of cost increases. They also need to make the most of economies of scale – their costs will decrease as the size of orders increases.”

Mirkovic added: “Reviewing where they can become more efficient is the first step,” she added. “Look at energy bills, staff costs, overheads and supplier costs. Credit check suppliers and do not be put off from making difficult decisions.

“If the decisions are too tough, then small businesses should consult a chartered certified accountant or their business banking adviser,” advises Mirkovic. “But the main message is don’t ignore your business’ costs and their immediate and future impact.”

According to the Confederation of British Industry, (CBI) the UK economy will probably grow at the slowest rate for 17 years in the next year.

Consumer price index inflation rose from 4.4% (July’s figure) to 4.7 % in August, more than double the government’s two per cent target.

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