Entrepreneurs have been warned to keep a tight rein on cash flow in the new year as the cost of running a small business in the Midlands is set to rise sharply on the back of rising commodity prices.
The quarterly inflation index revealed the cost of running a small business in the region rose by 0.5 per cent in the third quarter of the year, just below the national average of 0.6 per cent.
The rise gives weight to claims that confidence is returning to the economy, but researchers for the Business Inflation Guide, from insurance firm More Than said that further cost rises would hit businesses next year.
Costs for small firms in the region in the third quarter remained about 1.7 per cent lower than a year earlier, due to deflation in late 2008 and early 2009, according to the research.
In Britain overall, the guide showed fuel costs jumped by 3.42 per cent, while raw material prices rose by 1.57 per cent over the three month period. Meanwhile, gas prices fell by 17 per cent and labour costs dropped by 0.2 per cent. The overall impact meant manufacturing firms’ costs rose by 0.6 per cent, while service firms saw a 0.5 per cent rise over the quarter.
The guide, developed in conjunction with Warwick Business School, is a quarterly index that measures a basket of 20 of the most important expenditure items for small businesses.
In the third quarter of 2009, it recorded price increases in 12 of the 20 items.
Stephen Roper, professor of enterprise at the Centre for Small and Medium Sized Enterprises at Warwick Business School, said: “We expect small business costs in the Midlands and Wales to rise sharply, at least until Easter, when we predict prices will reach the same level as they were before the recession.
“While costs are on the up, the disappearance of deflation means markets are strengthening and consumer spending is growing.
“This all suggests we are now beyond the crisis, but small business owners must keep an eye on cash flow.’’
Researchers found that firms with less than ten employees experienced price rises of about 0.6 per cent across the last quarter, the same as the national average, but fared better over the year, with costs down 2.6 per cent compared to a year ago.
In comparison to the Business Inflation Guide, the UK’s Consumer Price Index currently sits at 1.9 per cent, while the Retail Prices Index is at 0.3 per cent.
Mike Bowman, head of More Than Business, said: “The predicted sharp rise in commodity prices as we go into next year is likely to raise the cost of running a small business, perhaps more than market demand.
“As a result, it’s important that small business owners manage cash flow carefully as suppliers begin to push prices up again as markets revive,” he added.
“Business owners with a heavy dependence on heating, lighting and fuel are expected to experience the sharpest rise in costs.’’