Keep it in the family?

Insightful research by MORE TH>N Insurance

Almost one in five small business owners (18%) have turned to alternative
financial providers, other than their bank, to stay afloat reveals research
from MORE TH>N BUSINESS.

Released in conjunction with the latest BUSINESS INFLATION GUIDE (BIG)*, the
data also shows that 58% of small business owners fear they will go under if
the predicted double-dip recession hits. Business owners are currently
generating funding from the following alternative resources:

- Friends and family (10%)
- Credit cards (7%)
- Loan companies (7%)

In addition to a slow recovering economy, the need for extra lending could
be forced by a rise in costs for small businesses. As detailed in the BIG, a
sharp increase in costs of 2.7% in Q1 2010, has been followed by a further
0.5% in Q2 2010 – 4.9% over the past year.

The largest cost rises in Q2 2010 were found to be for 'professional
services', including advertising and promotional expenses which increased by
4.9%. On the flip side, energy prices stabilised since Q1, offering some
respite for small business owners.

Manufacturing companies top the list of businesses worst affected by cost
increases of 1.1% in the period April through June and 6% over the last
year. The annual inflation rise for companies in the service sector is
marginally lower at 4.7%.

Across the regions it is small businesses based in the North that have been
worst affected – they saw a 1.1% rise in costs during Q2 2010 and a 6% rise
over the last year. Both the Midlands and Wales and Scottish regions endured
a rise of 0.6% in the last quarter while businesses in the South fared best
with just a 0.3% rise.

To save money, one third of small business owners have had to make cuts in
and around the workplace. Nearly half (47%) have reduced the use of basic
utilities such as water, gas and electricity, while 38% have cut back on
staff refreshments including tea, coffee and biscuits. Travel expenses have
also been cut by 38% of small business owners.

Mike Bowman, Head of MORE TH>N BUSINESS said: "The continued pressure on
costs means that SME cash flow is suffering and in a slow recovering
economy, some small business owners may be unable to rely on financial
support from banks. As a result they have to look elsewhere for the cash
injection they need to survive.

"Often, small business owners are forced to pass on cost rises to customers.
Certainly, they are having to cut back on costly but key activities, such as
travelling to long distance jobs and face-to-face meetings, which may
ultimately impact the bottom lines of their businesses."

Stephen Roper, Professor of Enterprise at the Centre for Small and Medium
Sized Enterprises, Warwick Business School, said: "With five consecutive
quarters of rises in costs and predictions of a double dip recession rife,
small businesses face a volatile future. Although the cost increase has
moderated since the 2.7% rise in Q1 of 2010, a year of persistent increases
means that overall small business cost inflation is a very significant 4.9%.
Over coming months, SMEs will need to make sure they cut back where possible
and do everything they can to ensure a steady cash flow."

Developed by MORE TH>N BUSINESS in conjunction with Warwick Business School,
the BIG is a quarterly index that measures a basket of 20 of the most
important expenditure items for small businesses.

The results of the Business Inflation Guide include data over the 2005 to
2010 period. The most recent results included in the latest report relate to
the period April 2010 to June 2010.