UK businesses are continuing to face significant increases in the cost of operating, with smaller and mid-sized businesses particularly exposed to rising employment and regulatory costs.
According to the British Chambers of Commerce (BCC), government policy measures alone have contributed to a 70% increase in business costs over the past decade. For a typical mid-sized business, this could equate to around £827,000 of additional costs each year.
Employer National Insurance has been a significant contributor to the increase, alongside higher minimum wage requirements and the costs associated with workplace pension auto-enrolment.
Rising costs are affecting business confidence
The BCC says that these pressures are creating a cycle of caution among businesses, with rising costs making firms less willing or able to invest in growth.
Importantly, the BCC’s 70% calculation does not include the effects of inflation, tariffs or Brexit. The overall increase in the cost of running a business may therefore be considerably greater for many firms.
For SMEs operating on relatively tight margins, even modest increases in overheads can have a substantial impact on profitability and cash flow.
What can businesses do?
While businesses have little control over changes to taxation, employment legislation and other government policies, there are areas where costs can be reviewed and managed.
For example, businesses may benefit from:
- Reviewing pricing to ensure increased costs are reflected in margins.
- Renegotiating supplier contracts where possible.
- Identifying unnecessary or inefficient expenditure.
- Reviewing the profitability of individual clients, products or services.
- Improving cashflow forecasting to anticipate future pressures.
- Benchmarking costs and margins against comparable businesses.
Understanding exactly where your money is going is an important first step. A detailed review of your costs and profitability can highlight areas where savings can be made, as well as opportunities to improve pricing or margins.
How does your business compare?
The BCC has developed a Cost Stack Calculator which allows businesses to explore how government policy costs have changed over time. Businesses can also submit their own figures anonymously, helping to build a broader picture of the financial pressures facing UK companies.
If rising costs are putting pressure on your business, now is a good time to review your numbers rather than simply accepting lower margins.
We can help. Whether you need support with cashflow forecasting, a review of your pricing and margins, or a detailed client profitability analysis, get in touch with our team to discuss how we can help your business respond to rising costs.
