According to research by digital bank Cashplus Bank, 9 out of 10 small businesses in the UK have seen their business running costs rise above their income in the past six months.
Cashplus Bank analysed data from 150,000 small businesses, which showed that an overwhelming majority, nine out of ten, have seen their business running costs seen rise considerably. And in the past six months, these costs have overtaken the money that has come in.
In the six months before the war in Ukraine began, between August 2021 and February 2022, the difference between outgoings and income was relatively small, but still in favour of the incoming side.
With income growing by a strong 25% during this period, due to the easing of COVID restrictions. But costs did also rise considerably by 21%, mainly due to supply chain issues and increasing energy and fuel costs.
However, since the invasion of Ukraine by Russia has pushed up energy and fuel prices even more, as well as inflation, the picture has changed. In the period between March 2022 and September 2022, business running costs have risen by 10%. In contrast, income has only grown by 8%, thereby leading to outgoings outstripping income.
Purchase Of Supplies And Stock With Biggest Increase
While all costs in relation to running a business have risen, the biggest cost increase for small businesses was in the purchase of supplies and stock, with a 21% annual increase.
Small businesses have seen another big rise in their costs for motor fuel, with an increase of 37% since the start of this year. This was largely due to the war in Ukraine, which has been responsible for soaring oil prices.
As a result of rising fuel costs, small businesses had to spend 94% more on air, rail and road transport year on year.
Costs for hospitality have also risen, with an annual increase of 43% for hotels and accommodation and a 14% increase on restaurant bills.
While the micro business population is diverse and varied, it’s obvious that this vital part of the UK economy is feeling the squeeze of the cost-of-living crisis.
Rich Wagner, CEO of Cashplus Bank
While the Government’s Energy Bill Support Scheme will help to keep energy prices to a more manageable level until April 2023, the uncertainty of what will happen after that, is a big concern for small businesses.
There are fears that if no more help is forthcoming from the Government for energy bills, the business running costs will prove too high for many small businesses.
Rising Interest Rates Big Concern
Rising interest rates don’t just cause a headache for households, who have seen their mortgage payments rise sharply. But many businesses also have loans, which are now more expensive to pay back.
With inflation still on the rise, the Bank of England (BoE) is expected to further raise the base rate – or interest rate – this month. It currently is at 2.25%, but experts widely expect the BoE to increase them by 0.75%.
Many small businesses had to use the Coronavirus Business Interruption Loan (CBILS) and the Bounce Back Loan Schemes (BBLS) to keep afloat during the pandemic. While these loans were, at the time, a lifeline that would get small businesses through several lockdowns, they could now become the reason businesses fail.
According to a survey conducted by EY in November 2021, one in three small businesses in the UK reported that they did not feel they had recovered enough to repay those support loans. Since then the situation has gone from bad to worse.
And those loans that were meant to support businesses through a tough time could now be their downfall.
The high interest rates will also make access to loans more difficult for small businesses, according to the Federation of Small Businesses (FSB). A survey undertaken by the industry body has shown that one in five FSB members who applied for a business loan were unable to find a rate below 11%, which is just not affordable for many small businesses.
If small UK businesses can’t access short-term cash through loans, they will struggle to survive, let alone grow.
If interest rates hit 6%, it will start to price out a lot of businesses. If we’re heading towards a tightening market, they are not going to be able to grow.
Daryn Park, Senior Policy Adviser at the FSB
That’s why it’s important that the new Prime Minister acts quickly to support these small businesses, many commentators say.
Recent announcements and subsequent U-turns have created an environment of uncertainty and instability, which makes it impossible for small businesses to plan ahead and prepare for the future.
And many businesses hope that they will receive this clarity and reassurance at the autumn budget, which is now planned for 17 November.
