Research from the Forum of Private Business reveals how small businesses are having their finances pinched as the economic recovery accelerates – putting cash flow and credit control high on the agenda for the coming months.
In its Cost of Doing Business survey, the FPB looks at a broad range of different influences on income and outgoings, to determine how robust business finances as a whole are at the moment.
For a start, it’s worth noting that only 3% of firms surveyed said they are able to pass costs on to their customers – and in spite of inflationary supply chains, 38% have to keep their prices static and cover the difference from their own profits.
The survey found 63% of firms have seen their costs increase, with 76% spending more on marketing, 70% paying more for energy, and 65% each seeing greater outgoings on staffing and transport costs.
Small businesses in particular are seeing a much higher rate of inflation than the headline figures might suggest, at an estimated 4.7%, rather than the 1.6% official rate.
In 81% of cases, the increase in costs has had a detrimental effect, and 73% of firms have had cash flow difficulties, 63% have experienced inhibited growth and 51% have been unable to employ as many staff as they otherwise would have done.
Among the most exacerbating factors, late payment was ranked first, affecting 55% of firms, competitor price-cutting impacted 47% and excessive admin due to banks, customers and the government was a problem for 35%.
Phil Orford MBE, chief executive of the FPB, said: “The economic outlook continues to improve but costs still remain an issue…
“This is a timely reminder that, despite all the talk of a need for above-inflation wage rises, businesses continue to feel the strain of rising costs.”
At any point in an economic cycle, it is important to ensure that cash flow remains as healthy as possible, so as to be able to absorb any cost impacts without putting your business at risk.
But with late payment an ever-present spectre for many firms, cash flow and credit control are currently going hand in hand to a greater extent than ever before – and keeping client debts at bay could be a crucial factor in managing your business finances better in general.