Rising business costs are adversely affecting the private lives and personal finances of many independent shop owners, according to a new study by business advisor Make It Cheaper and the Centre for Economic and Business Research (Cebr).
The research reveals more than half of small shop owners (56%) have had to inject additional cash into their company from personal sources this year.
Jonathan Elliott, managing director of Make It Cheaper, said: “The effects of squeezed margins and cost increases are not only threatening businesses, but the financial security of their owners and families.”
The study is based on independent research among owners and managing directors of 750 UK small businesses with 20 employees or less, commissioned by business saving advisor Make It Cheaper and supported by macroeconomic modeling by Cebr.
It found the majority (89%) of small businesses currently view the UK as an expensive place to do business and many finding they can only survive by supplementing the company with personal finances.
Almost a third of small businesses (33%) have had to turn to friends and family for a loan to cover spiraling costs, while a quarter (24%) have taken out a personal overdraft, bank loan (17%) or credit card (22%) for a cash injection.
Some small business owners have been pushed into even more extreme measures, with 13% going as far as re-mortgaging their homes, the study found.
According to the research, the average amount raised from all personal channels stands at just over £14,300 per business. However, this figure is much higher in some sectors, such as dental and medical surgeries – whose borrowing averages £120,000.
Cebr and Make It Cheaper have modeled an inflation tracker for small business overheads – the Business Cost Index. The Index exposes the areas which will exert the most financial pressure on SMEs this year; including 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.
Elliott said: “It is extremely concerning small business owners have been compelled to take the drastic step of placing their own financial stability in jeopardy to keep the company afloat.
“However, many small businesses feel they have no alternative, as costs rise and traditional lines of credit remain cut off. The situation is particularly pronounced in sectors such as hospitality, where businesses are red flagged as far as banks are concerned. It is no surprise so many are turning to personal loans and credit cards to survive.
“These businesses are having to box clever with their borrowing, but for an SME, saving £1 is like making £1 without having to take £10 in turnover first. So it’s time to think about switching suppliers and cutting costs.”