Average SME expenditure surpasses £1 million annually
The UK’s small businesses spend upwards of £1 million annually on business expenditure, new research has revealed.
According to American Express, the average total is £1,016,194, with the highest costs split between hiring new staff, paying suppliers and investing in new tech.
These three factors accounted for 63% of the total outlay and showcase the need for careful cash flow management to keep costs under control.
For businesses with 50 or more employees the average expenditure rose to £3 million, while the figure for micro businesses – those with between one and nine employees – was around £225,000.
Done in conjunction with the Centre for Economics and Business Research, the study also found that business expenditure rises as businesses age – those started 15 years ago were spending an average of £1.3 million annually, for example.
Cash flow management is a key aspect of growth plans and long term success, as it is imperative that all outlays are taken into account.
Given that many firms also struggle with late payments, the need to have a strong grasp on business finances increases further.
By managing costs effectively and by seeking alternative finance options when necessary, a business can ensure that it has a solid foundation from which to build on and expand.
Cash flow management takes greater precedence in London, as average annual SME business expenditure topped £1.8 million, making it three times more expensive to do business in the capital than in the North of the country.
This figure is also significantly above central England – defined as the East and West Midlands and the East of England – were the average outlay was around £1.15 million.
Costs were found to be considerably higher in January and December, accounting for 17% and 16% of the annual total respectively.
Failing to manage cash flow can increase the risk of insolvency, especially if a business lacks any contingency plans for if something goes wrong.
Having clear payment terms and knowing a business’ breakeven point are both key factors that need to be considered, as business owners can ensure that growth plans do not outstrip their means.
By Phil Smith