Small businesses have experienced a rise in orders and turnover in recent months, but profitability has dropped, says the Forum of Private Business.
Almost one in three members (30%) on its 'Economy Watch' panel saw increases in their order books and turnovers, with only 16% reporting an decrease between the FPB's previous survey in mid-October and the latest study, carried out in late November.

However, many business owners on the panel also reported a sharp drop in profitability during the same period as increases in fuel costs, energy prices and raw materials hit home.

Almost half of the firms surveyed (46%) said they had seen a recent increase in the cost of doing business, with only 1% saying costs had fallen.

As a result, 27% of Economy Watch panel members reported a decrease in profitability since they were last surveyed in October, compared with just 14% who reported an increase.

FPB spokesman Phil McCabe said: "Our research shows that, for now at least, business appears to be on the up for many small firms. This perhaps reflects other statistics on the health of the overall economy in recent months. However, the ever-increasing costs of unavoidable overheads like gas, electricity, fuel and raw materials are taking their toll and eating into small companies' profitability."

He added: "This inflationary pressure is a real concern - it basically means more money is being sucked out of small firms and transferred overseas, or over to multi-national businesses in the utility and oil industries. It's something the Government really needs to tackle if it wants smaller businesses to drive economic growth and create jobs in the months and years ahead."

Economy Watch also revealed businesses expect to secure 20% more finance for development in 2011 compared with 2010. However, the amount businesses expect to source from external sources - predominantly traditional bank lending - has seen a 27% slump. Correspondingly, the amount business owners expect to come from internal sources, such as directors, friends and family members, has shot up from 10% in 2010 to 45% for 2011.