Some businesses have seen their costs soar by 25% in one year

New research has revealed that 10% of businesses have seen their costs soar by over a quarter in the last twelve months, according to Creditsafe One quarter of UK companies have seen a 10% hike in their costs over the same period.

The shocking new figures are taken from a new publication - 'Annual report on SMEs: The punitive impact of business inflation'.

Almost two thirds (60%) of firms surveyed reported that they had experienced a rise in costs across the board over the past 12 months. Only 9% said they had decreased, with the remainder saying that costs had either stayed the same or they didn't know whether they had risen or fallen. Companies with a turnover of between £100,000-250,000 per annum ave experienced the greatest increase in costs.

The majority of British business’ expenditure is devoted to staff wages, which accounts for almost a third (29%) of all spending. Materials and stock account for a further 18% of expenditure, closely followed by taxation 16%. Fuel costs account for 10% of all spending followed by commercial property rents, mortgages and leases 7.5%.

Findings by Region

On a regional basis, businesses in Wales have been worst affected by increasing costs. Almost a third (31%) of businesses located in Wales has reported costs increasing by at least 10% in the last 12 months. However, analysis on a geographic basis where businesses have been faced with an extreme increase in costs, of at least 25%, reveals companies located in the Midlands have been worst affected (18%). Businesses located in London and the South East have been least affected by business inflation in the last 12 months.

Breakdown by Sector

Businesses operating in the transport (78%) and agriculture/mining sectors have faced the biggest cost hikes (74%) in the last 12 months, almost certainly because of rising oil and fuel prices. The businesses that have felt the pinch of growing costs most acutely included smaller companies with three to four employees (73%) or 11-25 employees (also 73%). Notably, businesses set up 10 years or so ago were feeling the pain, three quarters (76%) of companies established between 1995 and 1999 said they had seen higher costs over the past 12 months.

The rapid increase in costs is likely to have a dramatic impact on the profitability of SMEs if they are unable to pass them on to their clients and customers. Alternatively they will need to look to secure economies of scale and maximise efficiency ensuring a rationalisation of business processes.

Part of this process may include a greater emphasis on credit checking potential and existing customers and partners, mitigating against the risk of late payment.