By Max Clarke

Small firms are trapped in a vice of rising business costs, which is squeezing margins, choking growth and threatening their survival, according to a major new study by Make It Cheaper and the Centre for Economic and Business Research (Cebr).

The research shows that overheads have risen by almost a quarter over the past five years, and more than half of small business owners now warn that their company will simply not survive much longer if costs continue to rise at current rates.

Jonathan Elliott, Managing Director of Make It Cheaper, comments: “Rapid cost increases are placing the survival of small companies in jeopardy, and dampening the entrepreneurial spirit so crucial to economic recovery.”

The study is based on independent research among owners and managing directors of 750 UK small businesses commissioned by business saving advisor Make It Cheaper, supported by macroeconomic modelling by Cebr.

The vast majority of small business owners identify rising costs as the most significant threat to their company this year and warn that the country has become an ‘unbearably expensive’ place to do business.

Cebr and Make It Cheaper have modelled an inflation tracker for small business overheads — the Business Cost Index.

The Index shows a 22.8% rise in small business costs over the past 5 years, compared to the ONS’ Consumer Price Index increasing by 19.4% over the same period. According to the Make It Cheaper research, businesses themselves report an overall average rise in business costs of 4.5% year-on-year to July 2011.

In terms of individual overheads, the biggest risers predicted by the Index are 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.

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