Sunday, 7 August 2011

Cost & credit problems forcing SMEs to ‘raid the family silver’

Rising business costs are adversely impacting the private lives and personal finances of many SME owners, so says a new study by Make It Cheaper and the Centre for Economic and Business Research (Cebr).

The research reveals nearly half of small businesses (47%) have had no choice but to inject additional cash into their company from personal sources within the last year.

Jonathan Elliott, MD of Make It Cheaper, csays: “The effects of squeezed margins and cost increases are not only threatening businesses, but the financial security of their owners and families.”

The study is based on independent research among owners and MDs of 750 UK small businesses with twenty employees or fewer, commissioned by business saving advisor Make It Cheaper and supported by macroeconomic modeling by Cebr.

SMEs take desperate measures

The vast majority (89%) of small businesses currently view the UK as an ‘unbearably expensive’ place to do business and many are finding they can only survive by supplementing the company with personal finances.

Nearly one third of small businesses (27%) have found it necessary to turn to family or friends for a loan to cover spiralling costs while a quarter (26%) have taken out a personal overdraft, bank loan (22%) or credit card (25%) for cash injections.

Some small business owners have been pushed into even more extreme measures, with 13% going so far as re-mortgaging their homes.

According to the Make It Cheaper research, the average amount raised from all personal channels stands at a little over £20,400 per business. But it points out that this figure is much higher in some sectors, like as dental and medical surgeries, where borrowing averages at £120,000.

Cebr and Make It Cheaper have modelled an inflation tracker for small business overheads – the Business Cost Index. The Index exposes the areas which will exert the most financial pressure on SMEs this year, including transport costs, which are expected to rise 20.5%, energy bills, forecast to grow 8.5% and insurance premiums, set to rise 7.1% in 2011.

Jonathan Elliott, the MD of Make It Cheaper points out: “It is extremely concerning that small business owners have been compelled to take the drastic step of placing their own financial stability in jeopardy to keep the company afloat.

“However, many small businesses feel they have no alternative, as costs rise and traditional lines of credit remain cut off. The situation is particularly pronounced in sectors like hospitality, where businesses are red flagged as far as banks are concerned. It is no surprise so many are turning to personal loans and credit cards to survive.

“These businesses are having to box clever with their borrowing, but for an SME, saving £1 is like making £1 without having to take £10 in turnover first. So it’s time to think about switching suppliers and cutting costs.”

For further information, advice and free tools to help manage overheads and tightening credit from Make It Cheaper, please go to

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