Small firms predict costs will increase

Jan 14 2008 by Iain Laing, The Journal

NEARLY nine in 10 of the North-East’s small business owners expect the overall costs of running their business to increase in 2008.

Out of those expecting costs to increase, approximately one in seven expect costs to increase by over 10%, while three in 10 expect an increase of between 5 and 10%, and four in 10 expecting an increase of less than 5%, said a report by Bank of Scotland Business Banking.

The research, which examines small business owners’ predictions for a range of fixed costs in 2008, reveals that the majority of entrepreneurs expect all forms of costs to rise over the coming year, including interest rates, rents and property prices.

Three-quarters expect their salary bill to increase over the coming year and nearly the same amount expects the cost of supplies and raw materials to increase.

Ivan Matviak, head of Bank of Scotland Business Banking, said: “Small business owners are acutely aware of the impact that additional fixed costs can have on the bottom line, and the majority will have seen many of these costs increase exponentially over the past few years.

Meanwhile, hotels and restaurants saw a sales boom last year despite the soaking summer which hit business at small high-street retailers, says a report by the independent Small Business Research Trust (SBRT).

The report says that while 62% of businesses in the hotel and restaurant sector said sales had risen, only 15% said they had declined.

This was an improvement on the already strong figures for the previous quarter, when 51% of respondents said sales were up and 12% that they were down. SBRT quarterly surveys show that sales growth for the third quarter was, in fact, the highest in this sector for at least three years.

Sales for the retail and wholesale sector had been strong in the second quarter of 2007, with 48% of respondents saying they were up, compared with 14% who said they were down.

But in the third quarter, 36% reported sales growth while 37% said there had been a decline. The survey suggests that these figures may reflect the poor summer of last year.

Mark Beresford-Smith, senior economist at HSBC Bank plc, said: “The strong growth of sales by smaller businesses in the third quarter was achieved against the background of an economy which continued to expand at a healthy rate, in line with the long-term average. Although the survey was carried out before the problems surfaced at Northern Rock, it was already abundantly clear that a credit squeeze was under way.

“This probably explains the downgrading of expectations about future sales growth to a less elevated level than was seen in the first two quarters of this year.”

While hotels and restaurants experienced strong growth, little extra employment was created in this sector in the third quarter.

The survey found that more than half of businesses said their staff numbers had not changed while more than a quarter said more jobs had been created, and a fifth said that they had been cut.

Job-creation figures were slightly better in the previous quarter, when a fifth of businesses said employment was up and 3% said that it was down.