Deflation Hits Small Business

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The cost of running a small business in the UK has entered negative growth territory for the first time in recent history, meaning it is time to take advantage of the short-lived discounts and make sure to get a financial MOT as soon as you can.

More Th>n has found that small businesses across the UK experienced a 2.9% fall in costs during Q4 2008, largely due to a sharp fall in fuel prices, down 18.3%, and raw material costs, down by 11.95%.

But the insurer is warning that while small business owners will be happy to see costs reductions, this also indicates that markets are slack and people aren't buying.

Mike Bowman, head of More Than Business says: "After a sustained period of rising inflation, small businesses now have to quickly adjust to this deflationary environment, with some benefiting more than others. Deflation will come as good news for transport and haulage contractors as they will see fuel costs come down due to a sharp fall in oil prices. However, deflation is bad news for businesses that have their assets tied to property or large amounts of stock already purchased, as it will be losing value day by day."

Stephen Roper, Professor of enterprise at the Centre for Small and Medium Sized Enterprises at Warwick Business School, says: "Small businesses will continue to experience deflation over the next quarter as the UK economy continues to weaken. As a short-term benefit, deflation will provide a much needed pressure valve for small businesses which are currently very cash constrained."

So small-term gain followed by long-term loss means businesses have to be prepared for action now, while the sun shines. Talk to a financial adviser about how best to take advantage of the short-term windfall in time for the longer-term problems. Maybe a new mortgage, maybe just overpaying on your mortgage or maybe even an investment vehicle – whatever you do, don't let the opportunity pass you by.

SOURCE: More Than, 09/03/09

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