18-02-2008
Petrol prices present another burden for the small business
By Gee Sahota
The steep rise in petrol prices over the last few months is yet another blow to many small businesses that have already been blighted by the dip in the economy following the recent credit crunch, and a slowdown in consumer spending.
Rising to almost £1.10 per litre over the last few months, fuel costs are now expected reach a record high if another 2% is added following Chancellor Darling’s 2008 budget announcement. This additional 2p a litre from April is likely to be increased further by 1.84p in April 2009.
This planned fuel duty increase comes seven years after protests at refineries against fuel tax levels in 2000, which left Britain struggling for petrol supplies, and amid soaring oil prices and high borrowing costs. These rises have reinforced Britain’s position as the European country that takes the most duty per litre at an astonishing 50.35p, compared with a European average of only 22.7p.
Road transport costs constitute a core element of the price of almost everything we eat, drink and use each day. Transport is an imperative function for most small businesses and on top of already high petrol prices, the extra duty is likely to seriously affect the cash flow of the business. The result will ultimately be that the increase in cost will either be passed onto the consumer or it will shut the door for many small businesses who are already struggling on the edge of the anticipated recession.
Compounding the misery for small businesses
Lots of small businesses will not have factored higher petrol prices into their cash flow forecasts, meaning that the costs will inevitably eat into profit margins as they attempt to survive and remain competitive against the big players in the market.
From haulage companies and couriers to corner shops, post office and internet companies - all will be touched by the hike in petrol duty.
Petrol Retailers Association director, Ray Holloway, said that the number of independent petrol stations is already falling and that it would not take much to push more stations out of business.
The Freight Transport Association (FTA) says that the 2p increase will lead to the annual operating costs of one 44-tonne articulated lorry rising by £870 to £35,600.
"Fuel represents a third of the operating cost of many lorries and significant increases in fuel prices are bad news for transport and thus for customers," said Geoff Dossetter, FTA director of external affairs.
Jo Sellick of Sellick Partnership, a recruitment agency, commented, “if fuel prices continue to increase, our candidates will be less flexible in terms of how far they’re prepared to travel for an interview, which could ultimately affect our ability to fill vacancies with the most appropriate candidates. We’re also then faced with the issue of whether we should absorb these costs ourselves or pass them on to the client. Additionally, [we] have six offices around the country. … as directors regularly travel between them, [this] will directly increase our expenses.”
Preparing for the future
Depending on how the fuel prices will affect your business, there are possible solutions.
For businesses tackling cash flow problems, Factoring is a potential solution. This is where a lender will advance you money against your invoices, meaning that you get paid when the invoice is issued rather than when your client feels like paying. Once your client has paid the invoice, the lender will pay you the remaining amount less a service fee and interest. Factoring is also useful for companies with limited resources, as the lender can also manage your sales ledger for you – chasing your clients for payment and reconciling it against your accounts. You can find out more information about factoring companies and compare quotes with Simply Business.
One method of reducing fuel costs is to register with a group discount company such as LogBuy. LogBuy offers businesses with between 1 and 50 employees discounts on a range of business supplies including petrol from Esso service stations. Once signed up, your business would have access to over 50 leading supplier deals designed to reduce your business’s spend on non-core products and services.
Be proactive with your counter-measures
For a small business to survive, it has to be proactive and make provision in its business plan for the further petrol price hikes that have been proposed in April 2009. Some businesses have already planned ahead this year and lessened the blow for themselves when the proposed increase in duty arrives.
For example, Danny Schweiger, Managing Director of Character World has managed to integrate all possible eventualities into their forecasts for 2008.
“We deliver bedroom textiles to all the leading retailers all over the UK, so rising fuel costs are having an impact. We also travel frequently on business to China, Pakistan and many other countries and have to account for rising fuel costs. However, our business has planned for all eventualities and as such these costs will be absorbed as we grow and will not impact on our short, medium or long term growth targets.”
So, while the government attempts to become greener – finding ways to decrease pollution, and improve the public transport system - businesses are concerned that this goal is giving them a more liberal licence to tax. And once the taxes are in effect, will the extra money that is generated be spent appropriately and match the public’s expectations? Either way, it seems that once again it is the small and growing businesses that will have to bear the heavier load, while the government comes up with yet more controversial taxes for road users. The higher congestion charge and £200 emissions tax springs to mind …