On average a small to medium-sized business will spend £1 million on business expenditure according to research carried out by American Express and the Centre for Economics and Business Research.
Each year SMEs are spending an average of £1m on things such as new employees (24%), payments to suppliers (20%) and advanced technology (19%). Research found that SMEs who pass the larger criteria (50 employees+) are actually spending an average of £3m each year on services and goods for their business while the smaller businesses, especially micro businesses (1-9 employees) are spending £225,379 each year.
To add, as businesses get older they are they are having to spend more on business expenditure. In fact, businesses that were set up 15 years ago are spending an average of £1,385,400 each year. The research has revealed how important it is for a business to manage their cash flow from the start to achieve a successful growth down the line.
Senior vice-president at American Express, Jose Carvalho comments;
“Running a business can be an expensive affair and as our research demonstrates, there are significant costs involved when building a business. However, businesses that have the ambition and drive to grow shouldn’t be deterred. By having a robust cash flow management system in place SMEs will have an essential tool to manage costs efficiently without impacting the running of the business, its staff and customers.”
Mapping out the costs
When looking at future operation plans for SMEs, location is also a key factor to keep in mind. If your business is located in London, you can expect the cost of doing business to at least triple compared to the North.
Broken down by region;
West Midlands, East Midlands and East of England: £1,144,947
South East and South West: £696,602
North East, North West, Yorkshire and Humberside: £526,882
Research also found that the months of expenditure cost rises in are January (17%) and December (16%). Carvalho continues;
“More than half of SMEs are using business revenue to finance company expenses, while a quarter using personal savings. We found just over one in ten (13%) use business loans or credit cards. The benefit of working with a credit provider that has cash management tools is having access to expertise and support to help with your cash flow.”
Head of business finance at Businesscomparison.com, Laura Thomas also comments;
We see hundreds of enquiries each month for asset finance and cashflow loans from businesses looking to acquire the best rates, so seeing growth trends in UK SMEs investing in their own business to either grow or stabilise is always positive news for the economy.
There are many ways businesses can raise funds to reinvest in their business, some of which are not debt funding but based on future earnings which can be ideal for business growth. Signing on the dotted line when spending on recruitment, technology or assets can be daunting for businesses, which is why we always encourage and assist with research into obtaining the best possible product and rates at all times.