The spectre of deflation does not appear to spell out bad news for all SMEs as one quarter (26%) of small business owners would view such a period as a positive stimulus for their businesses. Such a stimulus could come in the form of lower running costs. More than half (53%) of small business owners think that the costs of running a business will remain flat (41%) or possibly lower (12%) over the course of the year in comparison to 2008.
With operational costs remaining relatively flat, the majority (53%) of small business owners expect to freeze prices for their customers during 2009 although one in eight (13%) expect to buck the trend and hike their prices by more than 5 per cent.
The customer is king
The research by Bank of Scotland reveals that small business owners are increasingly being driven by customers to push prices lower in recognition of tougher market conditions:
Nearly eight in ten (79%) believe that that are operating in a tough market, where customers are looking to drive down prices and get the same for less.
Seven in ten (71%) believe that customers buying in bulk are pushing for discounts.
Six in ten (61%) believe that customers are increasingly looking to dictate prices, telling them what they are willing to pay for goods and services.
Business running costs
When it comes to their own business running costs, SME owners present a mixed picture in terms of whether they believe costs will go up or down:
Despite the Government's pledge to postpone the proposed increase in small company tax, nearly four in ten (37%) under the impression that rates of tax will still increase this year.
In line with the downward trend in both commercial and residential property prices, seven in ten (68%) expect commercial property prices to continue falling.
Eight in ten (80%) expect to either hold salaries at the same level (67%) or even decrease them (13%) over the year.
Other overheads are expected to become less expensive, with four in ten (41%) expecting office equipment costs to decrease.
Donald Kerr, Commercial Banking Director, Bank of Scotland said: "Contrary to the trend in recent years, small business owners are now anticipating level or even possibly lower running costs over the coming year. However, against a background of difficult trading conditions, the majority of companies are now being pushed by their customers to reflect these lower costs in lower pricing. Small business owners will clearly have to demonstrate some acute financial acumen in order to balance the need to maintain margins whilst keeping product and service pricing in line with demand."
