Small businesses face many struggles in their early days, but costs are the biggest one, according to research conducted by Opus Energy.
The research found that for 40 per cent of small businesses, costs were the biggest challenge most likely to affect them.
The finding brings into question the importance of lending and financing options for SMEs as a barrier to success. In the UK, it is estimated that 100,000 businesses are rejected for financing by banks each year.
So, what are the costs that small businesses face, and how can the burden be reduced?
For many businesses, staffing costs are the biggest factor. Staff costs include wages and National Insurance contributions, and on top of that there are utility bills, business rates, premises costs, equipment, taxes, and inventory… it’s not difficult to see why costs are such a barrier.
Generating revenue is a difficult enough task for new businesses, and seeking funding is one way to counter the costs of doing business.
However, accessing new finance streams has been difficult due to the uncertain economic climate in the UK since the EU referendum. The Bank of England announced in 2017 that it expected business lending to be 25 per cent lower by 2019 compared to pre-referendum levels.
This Brexit bite has led to a confidence crisis across the banking and finance sectors. Creating a difficult environment to operate in, with a knock-on effect on business confidence.
What can help SMEs access financing?
Legislation enacted in 2015 – the Small Business, Enterprise & Employment Act – requires leading high-street banks to share information about finance applicants with other lenders to make it easier to access funding.
This should make it easier for business to overcome money struggles by making it easier to access alternative avenues of financing, even at times when the economic climate is unfavourable.
When accessing funding is not possible, however, businesses must think of other ways to reduce the strain on their budget. This can be achieved either through cutting costs or boosting revenue.
Cutting expenditure is a phrase with negative connotations, but it doesn’t need to be – think of it as an opportunity to reallocate resources to where they can have a better impact on business growth. Perhaps it’s simply by finding areas where you’re spending unnecessarily.
Boosting revenue is always easier said than done. It requires hard work through relationship-building and sales, but the cliché that you must spend money to make money holds some truth. Investing in important areas – such as online presence, SEO, and so on – can help to make your business more visible and more likely to attract income.
Conor McArdle is content executive at Brighter Business