Small businesses have reported a steep and sustained rise in operating costs, with average expenses climbing 44.4% over the past three years, according to the Small Firms Association (SFA). The findings come from the latest Small Business Survey conducted by Amárach, which gathered responses from more than 400 companies across the sector.
The survey shows that over three-quarters of small firms experienced higher costs in the past year alone, a significant increase compared with 49% reporting similar pressures in the previous year. More than one in four businesses said their costs rose by at least 10% over the past 12 months, highlighting the pace of inflationary strain across the sector.
David Broderick, director of the SFA, described the trend as “quite shocking and quite frankly unsustainable,” pointing to mounting pressure on employment-related expenses as the primary driver. He noted that labour costs have increased by about 50% over the past three years, making them the most significant burden for small employers.
Broderick said changes such as pension auto-enrolment, parental leave provisions and sick leave policies have collectively pushed up payroll costs. According to the survey, four in five firms have seen increased expenses linked to these employment measures.
Energy costs also remain a major challenge, rising by 44%, while insurance premiums have increased by 39%. Broderick said insurance costs, which had briefly eased in 2023, have once again become a significant concern for business owners.
The financial strain has had a direct impact on liquidity. The SFA reports that 59% of small firms now have less than six months of cash reserves available, raising concerns about resilience in the event of further economic shocks.
At the same time, borrowing remains limited. Only one in five companies are actively seeking credit, a trend Broderick attributed to caution and uncertainty in the business environment. He said many firms are reluctant to take on debt despite tightening financial conditions.
The SFA has urged the government to introduce measures to ease cost pressures on small enterprises. Among its proposals is extending the reduced VAT rate currently applied to the tourism sector across all industries. It has also called for a pause on further increases to the national minimum wage, arguing that repeated hikes over recent years have added unsustainable pressure on employers.
Broderick stressed that business owners recognise the importance of fair wages but warned that cumulative increases of more than 40% since 2021 have reached a tipping point.
While policymakers continue to weigh options for supporting growth, the latest figures highlight the growing strain on small firms, many of which are now operating with reduced financial buffers and limited capacity to absorb further cost increases.
