Rising costs and skills shortages hamper small business growth in Q2

SMEs reported the cost of running a business has drastically increased from last year, according to FSB’s small business index report for Q2.

Rising input prices had SMEs concerned about their future, with many small businesses experiencing large fluctuations that ate into their tenuous profit margin. 

This increase is likely to contribute to rising inflation, which could hamper economic recovery from the COVID-19 pandemic, according to FSB.

Along with the rising price of raw materials, the cost of labour was also a driver of the spike in operating costs, due to the ongoing skills shortage that has been drastically exacerbated by the pandemic.

More small businesses are raising a lack of appropriately skilled staff as a barrier to growth than in previous quarters. Of the 1,561 respondents, 37 per cent said lacking the right staff was holding them back.

In their introduction to the latest report, FSB national chair Mike Cherry and policy and advocacy chair Martin McTague opined that addressing the skills shortage should be a priority for government action.

“Ensuring that small businesses can access the right level of skills, especially in high-growth sectors and industries essential to the functioning of the economy, should be a key priority for the government,” Mr Cherry and Mr Tague said. 

“New initiatives around apprenticeships, traineeships, T-level placements and Kickstart should be expanded to have a greater impact.”

Kay Daniel Neufeld, head of macroeconomics at Cebr, added in his analysis that staffing issues had been made more acute by workers being required to self-isolate.

“The ‘pingdemic’ has shown that the pandemic is still able to disrupt businesses,” Mr Neufeld said.

But the report noted that ultimately small businesses remained optimistic about their profitability in future, perhaps due to the greater certainty provided by the government’s roadmap out of lockdown.

Many were also relieved that the moratorium on commercial evictions for businesses had been extended until March 2022, as well as the announcement that the restrictions on issuing statutory demands will remain in place until the end of September.

“Easy measures for the government to sign off, of course, as they do not require contributions from the public purse,” Mr Cherry and Mr Tague said.