A study undertaken by the Centre for Economics and Business Research study found that SMEs, on average, spend around a million pounds a year on their business operations. Those with more than 50 staff spend an average of £3m every year on goods and services; micro businesses, i.e. those with fewer than nine employees, spend an average of £225,379.
The study was able to drill down into the figures, discovering that the average SME spends 24% of its budget on hiring new staff, 20% paying suppliers, and 19% on technology. The good news is that older businesses tend to spend less on expenditure. However, overall, it shows the importance of managing cash flow at all levels of business.
Here’s our breakdown of these, and other expenditures that make up the majority of an SME’s costs:
Don’t forget that staff expenditure doesn’t end with how much you pay them. You will also take into account any benefits, bonuses and commission, tax, insurance, as well as the HR costs involved, including pension contributions, the cost of recruiting and training new staff, training courses etc. You also need to factor in the cost of any consultants whose expert advice will help you do a better job of running your company, e.g. trainers, HR specialists, management consultants etc.
You also need to take into account the fact that there will be times when your staff are faced with productivity problems, which could be anything from being delayed in meetings, stuck in traffic, sickness, power cuts or breaks in broadband to disasters such as fire or flooding for which a rigorous disaster recovery plan needs to be in place.
If you are a retailer or manufacturer, you will have the cost of buying in stock and raw materials which also have costs associated with delivery and storage.
Overheads and operating expenses
Having the right technology is vital for the smooth running of your business and provision must be made for upgrading it on a regular basis. Your computer systems may appear to be working, but older ones will probably be slower (wasting valuable staff productivity time) and less secure. In 2017, the average cost of a security breach to a medium-sized organisation was over £3k, so it is well worth the investment to keep your cybersecurity up to date.
All businesses incur the expense of running the organisation – office rental, utilities, office equipment, and any company vehicles.
Late payments and long payment times
SMEs can really struggle and sometimes go out of business altogether because of late payments, whether it’s because of long payment conditions – sometimes 90 days or more – or the inefficiency or poor ethics of your debtors. Late payments cost SMEs a whopping £2bn a year in terms of chasing them and paying interest on overdrafts and loans to keep the company going in the interim.
If you run a small or medium business and need help managing your company’s expenses, financial planning and business advice, please talk to us! Call us on 01992 444466 or click here to contact us to find out more.