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How SMEs can manage extra employment costs

It will be the last thing SMEs want but a new study suggests that these firms are facing a near £3K hike in their annual employment costs from April. How can they manage? Non-bank finance is part of the answer.

According to the Federation of Small Businesses, SMEs could be lumbered with £2,600 in extra employment costs every year as a result of government policy, including a living wage-related increase in national insurance contributions, and pension auto-enrolment requirements. For small business owners whose capital and cash flow are already under significant pressure, the prospect of having to dig even deeper into their pockets will come as a huge blow.

So, how do SMEs manage these extra costs? Data from the British Chambers of Commerce’s latest International Trade Survey suggests one answer will be to pass the burden directly on to consumers. According to the survey of 1,500 businesses, more than half said they were expecting to have to increase prices because of the weak pound. Any extra pressure on bottom lines and this percentage is likely to rise. However, given the level of Brexit-bred market uncertainty and the impact it has already had on retail prices, the effectiveness of this strategy seems highly questionable.

Another report, this one from Flogas, suggests small businesses could make significant savings by properly managing their utility supply. According to the company, SMEs currently waste over £1.7 billion in a year by not changing their gas supplier. That’s a big figure and any savings could help some firms ease the pressure on cash flow, but it’s hardly a universal solution.

What would work better is the combination of steps such as an energy supply review and a price point rework with the use of SME finance services that are easy to access, more affordable to employ and offer more flexibility. The popularity of non-bank finance services such as invoice finance, asset finance and peer-to-peer lending, has sky rocketed as trust in traditional lenders has remained at a low level.

Given the degree of market uncertainty and the prospect of more pressure on cash flow, alternative finance services are set to become even more important going forward.

To find out more about A&T Business Associates services, contact us on 01903 602211 or info@atbusinessassociates.co.uk.

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