With recent hikes in fuel prices they add significantly to the cost of some businesses. Those engaged in logistics or other fuel intensive industries such as mining and agriculture bear the brunt of the increase since they have to pay for fuel today but cannot realise income until goods are sold or services performed. That means there can be additional cash flow pressures on funding the cost and at a time when banks have restricted lending – this can send an otherwise profitable business to the wall.

The impending April rise in fuel duty of around 5p per litre will add another £14,000 per year to the costs of a haulier running a typical 10 truck fleet. That cost has to be recovered somehow and although most hauliers have fuel price escalator contracts it is common for some of the costs to stick with the haulier. This could be a disaster for some companies who are already finding it a struggle

But the fuel price hike comes at a time when businesses are also to suffer a reduction in other government help. HMRC had introduced a support measure that allowed companies more time to pay their tax and VAT bills. This measure is being slowly wound down so the impact of fuel price rises will increase as money has to be found to pay tax bills on time. Martin Williams, Managing Director of one of the UK\’s leading commercial credit reference agencies, says that this measure is likely to see an increase in business failures in 2011 as companies not only struggle to pay their tax bills but their fuel and general utility bills.

So fuel price increases can be just one reason why businesses fail. However it tends to be a range of factors that all impact in a small way that accumulate to send a business under. Fuel price increases can be passed on through well negotiated contracts but increased competition will force the smaller players out of the market as more efficient and aggressive players manage the process better. And that means the small business community with less negotiating muscle are likely to be to worst affected in the supply chain.

A 0.76p increase on the 1st January 2011 brought the duty rate for the main road fuels up to 58.95p per litre. This coincided with the 2.5% increase in VAT rate, which is now at record high of 20%
But with fuel now receiving somewhere near 70% tax on the costs many people believe that this is just another way to gain more money to cover the deficit in the budget.

To break petrol cost down easier if a litre of petrol was 126.9p 58.95p of this is on duty, 41.8p on the product, 21.15p on vat and 5p to the retailer/delivery, this is not including the tax that the government will receive from the business and retailers

90% of the reasons business fail can be tracked back to poor management. However, physical factors such as a major hike in a core cost component can stretch the capabilities of any business to survive.

Author Bio: Garry Hudson writes about all things debt and financial related and currently works for Baines and Ernst who help people clear their debt

Category: Finances
Keywords: clear debt, debt financial problems, fuel prices, business