Small business running costs continue to fall

The cost of running a small business has fallen for the second consecutive quarter, according to the latest Business Inflation Guide.

The report, which is produced by More Than Business and Warwick Business School, measures the price of 20 of the most important goods and services for small firms.

It found that the cost of running a small business fell 1.4% over the first quarter of 2009 due to declining labour, advertising, materials and vehicle costs. This follows a significant fall of -3.1% in the last quarter of 2008.

Overall, small business operating costs are now around 0.6% lower than they were at this time last year, before the effects of the global financial crisis gathered pace.
Manufacturing saw a more pronounced fall than the services sector, due to falling input and fuel prices.

However, those in the service industry could benefit from the current decline in labour costs.

Mike Bowman, head of More Than Business, warned that while small business running costs are down, so is demand.

"It is now cheaper to run a small business, but the drop in prices signifies a drop in demand for goods and services and that is why prices are spiralling downwards," he said.

"Looking forward, it is genuinely quite hard to predict which way the small business economy will move over the next year. I doubt we will get back to the very sharp inflation we have seen, but I suspect we will move closer to cost stability next quarter."