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Rising costs fail to dent small business confidence

Tuesday 18th April 2017

Costs are on the rise for many small firms in the UK, but this hasn’t prevented them from adopting a positive attitude on their prospects for growth and trade, research has shown.

The latest Small Business Index (SBI) from the Federation of Small Businesses (FSB) gave a result of 20.0 for the first quarter of 2017. That is the highest figure recorded since the final quarter of 2015 and a significant improvement from the -2.9 result that followed last year’s EU membership referendum.

One of the key trends that has contributed to the strong outlook among Britain’s smaller firms is rising international trade.

A net balance of 15.6 per cent of respondents reported an increase in export activity over the past three months, while a balance of 30.5 per cent were expecting a rise in international sales over the next quarter. Both of these figures were the highest since the SBI began.

Mike Cherry, national chairman of the FSB, commented: “It’s hugely encouraging to see our small businesses trading more overseas, driving an exports-led recovery. We know small firms that export have higher turnovers than those who rely on the domestic market, so it’s crucial that the government maximises cross-border trade opportunities for small firms.”
Another theme uncovered by the report was the recent increase in the cost of doing business for many companies.

A net balance of 64.5 per cent of small firms said their operating costs had risen over the past quarter. Fuel (36.8 per cent) and labour (35.9 per cent) were cited as the biggest contributors to increasing costs, followed by the exchange rate (26.9 per cent).

For the smallest firms, keeping costs down can be one of the most valuable ways of keeping the enterprise afloat, particularly in the first few months of operating when cash flow may be limited.

One effective way of maintaining control over costs is by being flexible when it comes to workspace – by using short-term office hire instead of a long-term lease, for example.

Rising employment
Even though the cost of labour has been one of the biggest causes of rising business expenses in recent months, the smallest firms are still showing a positive attitude when it comes to expanding their workforce, according to the FSB research.

The net balance of respondents planning to increase employment over the coming quarter rose to a near two-year high of 11.3 per cent.

Mr Cherry said the UK’s small firms had made it very clear that they want to keep hiring.

“One fifth of our small businesses with staff employ non-UK EU citizens so guaranteeing the rights of EU workers based here should be a top priority for Brexit negotiators,” he added. “On the domestic front, an increase in the Employment Allowance must be a key consideration for the Autumn Budget.”

As long as companies can continue to access to staff they need and keep their costs under control, there is plenty of cause for optimism around the performance of the UK’s emerging enterprises over the coming years.

 

Posted by Julie Tucker

Image courtesy of iStock/nd3000

 

 

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