Many small business owners are having their personal finances in addition to their private lives adversely affected by continual rising costs, according to a study undertaken by the Centre for Economic and Business Research (CEBR) and Make it Cheaper.
Approximately 50% of all small businesses have been forced to introduce additional funds into their businesses from personal resources during this past year, with almost 33% of them having to call on family and friends for cash loans. Other small business owners have been obliged to utilise bank loans, overdrafts and credit card accounts to overcome their cash shortages. Some owners have re mortgaged their homes.
According to Make it Cheaper’s Managing Director, Jonathan Elliott, cost increases and pressurised margins are affecting the financial security of owners and their families as well as posing a threat to the business itself.
Based on the results of research among Managing Directors and owners of over 750 small businesses of 20 or less employees, it has been found the majority see the UK as an intolerably expensive place to do business. Many feel they can only survive by boosting up the company from their own resources.
The average amount borrowed from personal funds is a little over £20,000 per business unit but in other sectors, such as medical and dental surgeries, this figure is closer to £120,000 per unit. The forecast for this coming year does not look any better say the researchers.
Make it Cheaper, in collaboration with CEBR, have developed an inflation tracking system for the overheads of small businesses. Known as the Business Cost Index this will highlight areas likely to exert the most pressure financially on SME’s during the coming year.
Costs are expected to increase sharply in 2011 and among the most significant will be electricity and energy costs rising by nearly 9%, transport costs going up by 20% and insurance costs are also expected to rise by 7% in 2011. These increased costs will have an enormous impact on the profitability of the small business.
Jonathan Elliott has commented that it is most concerning for the small business owners to destabilise their personal financial resources. Many of the owners interviewed in the study feel there is no alternative but to take this drastic step.