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Inflation and rising business rates could mean £6.8bn hike for SMEs

Stagnant revenues and increased costs could eat into SME profit margins this year

Small and medium-sized businesses (SMEs) could see a hit of £6.8bn this year, due to inflation and rising business rates.

SMEs play an important role in the UK economy, produce a combined annual turnover of £1.8 trillion, employ 15.7 million workers and account for 99.9% of the private sector.

As inflation is forecast to rise by 2.7% this year and business rates have been evaluated for the first time in over 7 years, 2017 is set to be a tough year for SMEs.

According to a recent report from insurance group RSA, rising costs for businesses mean that almost 4 million (71%) SMEs predict that their revenues won’t grow this year, 756,000 (14%) businesses expect their revenues to shrink this year representative of £252bn in turnover expect their revenues to fall.

And 51% of businesses think that the government is not doing enough to support SMEs.

The average retailer set to see an 8.4% increase in rates from April 1st according to RSA and the highest hikes are projected for the capital where some businesses could be contending with rises of over 45%.

Of the 5.4m SMEs in the UK, 2.1 million (39%) have said that the continually rising business costs are among the top 3 risks to their businesses.

Economic pressures have also left some SME owners questioning whether their business will survive the year.

According to a survey earlier this month by the Federation of Small Business (FSB), more than half of the businesses they surveyed, one in five small businesses anticipate closing down or selling their businesses if their rates skyrocket in April.

RSA’s Schemes and Deal Director, Russel White said:

“The business environment is expected to become much harsher in the coming year, and it’s crucial that businesses plan ahead to ensure that they are prepared. The government also has a role to play by considering ways through which it can mitigate the negative effects that increasing business costs could have on the economy.”

What are the pressures facing SMEs this year?

Business rates are set to increase from 1st April

Inflation is expected to rise to 2.7% in 2017, up from 1.6% in 2016

Auto-enrolment pension costs

The price of imported goods is set to increase

The apprenticeship Levy will be introduced in April 2017

Sterling remains volatile and has fallen approximately 15% since January last year

Consumer spending is expected to slow due to rises in inflation

What can SMEs do to soften the blow?

Regularly review your business plan, make sure it’s up to date and suited to the current market

Review your cash flow and access capital to see how much leeway you have. This will help you to identify if you need to do more and put yourselves in a stronger position, covering unexpected costs etc.

Keep an eye on the market conditions, economic forecasts and trends. If you can identify them early on you can adapt your business to suit them.

Take another look at your costs, can you reduce any excess spending or unnecessary costs

Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including, and as well as other global industry publications.


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