• 55% of small businesses fear for their survival if costs continue to escalate
• 23% rise in small business overheads since 2005, according to Cebr
• Cost inflation limiting the growth of three quarters (74%) of small firms

Small firms are trapped in a vice of rising business costs, which is squeezing margins, choking growth and threatening their survival, according to a major new study by Make It Cheaper and the Centre for Economic and Business Research (CEBR).

The research shows that overheads have risen by almost a quarter over the past five years, and more than half (55%) of small business owners now warn that their company will simply not survive much longer if costs continue to rise at current rates.

Jonathan Elliott, Managing Director of Make It Cheaper, comments: “Rapid cost increases are placing the survival of small companies in jeopardy, and dampening the entrepreneurial spirit so crucial to economic recovery.”

The study is based on independent research among owners and managing directors of 750 UK small businesses commissioned by business saving advisor Make It Cheaper, supported by macroeconomic modeling by Cebr.

The vast majority of small business owners identify rising costs as the most significant threat to their company this year (78%) and warn that the country has become an ‘unbearably expensive’ place to do business (81%).

Cebr and Make It Cheaper have modeled an inflation tracker for small business overheads – the Business Cost Index.

The Index shows a 22.8% rise in small business costs over the past 5 years, compared to the ONS’ Consumer Price Index increasing by 19.4% over the same period. According to the Make It Cheaper research, businesses themselves report an overall average rise in business costs of 4.5% year-on-year to July 2011.

In terms of individual overheads, the biggest risers predicted by the Index are 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.

Rising costs over the past five years have damaged the growth of three quarters (74%) of small UK firms, and will limit the growth of 78% this year, according to the Make It Cheaper research.

More than two thirds (67%) of firms have seen their profit margins hit by increasing costs over the past 3 years, to the tune of 22% on average, whilst approaching half (46%) have been forced to increase prices and nearly a quarter (22%) have cut staff.

Worryingly, three fifths (59%) of small business owners claim that the high cost of doing business in the UK is acting as a disincentive for growth, whilst 86% believe it is damaging economic recovery.

Jonathan Elliott comments: “Government policy needs to curb business cost inflation this year. Howevernot all threats identified by entrepreneurs are outside of their control.

“By shopping around, comparing prices, regularly switching suppliers and taking care not to get caught in contract renewal traps, companies can go a long way to bringing their overheads, such as energy, under control.” Check it out by visiting Make It Cheaper or phoning 0800 035 9669