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Emerald Group Publishing Limited
Copyright © 2003, MCB UP Limited
Cut to survive
The widening gap between the costs that the UK's small and medium sized enterprises (SMEs) are having to pay and the prices they are able to charge is forcing the sector to resort to redundancies in order to survive, according to the "PKF SME Index", a quarterly survey of 800 SMEs operating in the manufacturing, construction and service sectors.
The gap between costs incurred and prices charged is the largest for two and a half years and is being exacerbated by US dollar and Euro exchange rates for businesses relying on export markets. The resulting pressure to reduce costs is forcing the manufacturing sector to cut staff to the lowest levels since the beginning of 1999.
The Midlands is suffering from the biggest gap between costs (63.3 – where 50.0 is no change) and prices (51.9). Ian T. Price, finance and IT director of Centreline Machine Tool Company in Nuneaton, said: "We are unable to increase our prices overseas due to US dollar and Euro exchange rates and yet our European competitors are enjoying a 10-20 per cent increase in revenue. In the UK, the costs just keep on increasing and most of these are government costs. The quickest way to cover the difference is to reduce staff – the most costly item in our budget. With increasing costs and little chance of increasing revenue, one of our strategies for survival has to be more redundancies".
Despite the difficulties with rising costs and the weakness of Sterling, there is little enthusiasm for joining the Euro. More than 60 per cent of the PKF Growing Business Forum think that the UK should continue to delay its adoption of the Euro for more fundamental reasons such as the structure of European Union institutions and the continuing flood of bureaucratic legislation.
The level of new business has fallen to its lowest level since the end of 2001 for the manufacturing and services sectors. Levels of business activity and incoming new business are lowest in Scotland (48.4 and 48.0 respectively) compared with the national average of 50.7 and 50.1.
Nick Winters, SME partner at PKF, commenting on the findings, said: "The feedback from the members of our Growing Business Forum clearly echoes the view that SMEs are managing to survive in spite of the Government's management of the economy rather than because of it. Nearly two thirds think that the National Insurance increases should be repealed, 42 per cent think that public spending increases should be deferred, and 36 per cent would like the Chancellor to stop meddling with the tax system".
The PKF SME Index report is produced for PKF by the independent research company NTC Research. PKF is the eighth largest firm of accountants and business advisors in the UK with more than 1,600 partners and staff operating in over 25 offices around the country (see: www.pkf.co.uk/). The report features original survey data collected from a representative and anonymous panel of 800 UK companies which operate in the manufacturing, construction and services sectors. The data are complemented by information supplied by the PKF Growing Business Forum. The Forum comprises directors from small and medium sized enterprises across the UK, who have been invited to offer their own perspectives and knowledge of the key issues facing growing businesses. For the purpose of this report, an SME is classified as a firm with fewer than 250 employees.