RISING inflation could add £6.8bn to small- and medium-sized enterprises (SMEs)’ running costs in 2017, a new report has revealed.
The research commissioned by commercial insurer RSA also found that 756,000 (14 per cent) of businesses expect their revenues to shrink this year, while over three million (57 per cent) expect them to stay the same.
The predicted 2.7 per cent rise in inflation this year will increase the cost of imports and is likely to slow down consumer spending. Combined with stagnant revenues, it is likely to eat into businesses’ profit margins and hinder their growth, the report said.
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Those 756,000 SMEs expecting their revenues to take a hit have a collective turnover of approximately £252bn – which means the decline could significantly impact the country’s economy, the report warned.
Rising business rates, auto-enrolment and the apprenticeship levy are also set to weigh on SMEs’ bottom lines. In April, business rates will increase by 8.4 per cent for the average UK shop, while those in central London could see increases of as much as 100 per cent.
The survey of 1,000 senior decision makers at UK SMEs also found that 39 per cent of the country’s 5.4 million SMEs see rising business costs as a top three risk to their business, while 51 per cent think that the government is not doing enough to help them grow.
“The business environment is expected to become much harsher in the coming year, and it’s crucial that businesses plan ahead to ensure that they are prepared,” said Russell White, schemes and deals director of commercial risk solutions at RSA.
“The government also has a role to play by considering ways through which it can mitigate the negative effects that increasing business costs could have on the economy.
“One solution could be increasing the small business rate relief threshold so that it includes properties with a rateable value below £20,000 rather than £12,000. Employing such a strategy could result in the government generating more money than it would have done in the long run by boosting business growth.”
RCA said SMEs could strengthen their position by regularly reviewing their business cash flow and access to capital. Speaking to financial advisors could also help them find different channels to boost growth and weather potential financial shocks.