The growth prospects for SMEs in the UK look bleak, prompting Lucile Knight, chief strategic development officer at Bibby Financial Services, to urge industry and government to work together to put in place measures to shore up vulnerable small and medium-sized businesses.

As the latest UK GDP figures shrink for a second month running, this has prompted a new wave of warnings from experts that the economy is teetering on the brink of a recession. This could spell disaster for many of the UK’s 5.6 million SMEs, which are the lifeblood of the economy, making up 99.9% of the UK business population.

Indeed, at a time when SMEs are only just getting back on the road to recovery post-Covid disruption, the economic situation now facing businesses is potentially cataclysmic – with spiralling inflation, soaring interest rates and global supply chain issues all compounding existing cashflow issues.

Lucile Knight

In fact, our latest SME Confidence Tracker research found that many SMEs are already struggling to stay afloat, let alone grow. Of those SME owners and decision-makers surveyed, only half (52%) say their business is profitable, with four in ten (38%) describing themselves as ‘just about breaking even’ and one in ten (9%) reporting that they’re operating at a loss. And as inflation hits a 40-year high, it’s clear that many of the UK’s SMEs are in survival mode, struggling to keep their head above water on a day-to-day basis.

It’s no surprise that this alarming rate of inflation is the chief concern of SME owners and decision-makers, with 42% citing rising costs as their biggest challenge in 2022. And, as margins tighten, cashflow will also rise on SMEs’ list of worries, with over a quarter (26%) already highlighting cashflow as a key concern.

When cashflow is so critical to business survival, late or failed payments can be fatal, and fresh warnings of a recession will no doubt compound these concerns, especially with bad debt on the rise since the pandemic.

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Our research found that 28% of SMEs have suffered from bad debt in the previous 12 months, where sums amounting to an average of £10,329 have been written off owing to customer non-payment or protracted default in the last year alone. This is significantly higher than the 20% of businesses that reported having experienced bad debt in 2021.

The UK’s SMEs faced the pandemic with fortitude but are yet again facing another sink or swim moment. Remaining profitable will only become more difficult as costs continue to rise, bills become harder to pay and a cashflow crisis leaves SMEs down and desperate.

These businesses must now ensure their business model is resilient and that they have the cashflow facilities in place to ensure they can continue to run profitably throughout economic turbulence.

But SMEs across all sectors will also need support from both the private and public sectors. In particular, if the UK government is serious about bringing the economy back from the brink, they should carefully consider how they can best enable SMEs to do what they do best, which is to fuel growth. We would urge policymakers to closely look at meaningful interventions, such as by reinvigorating the underused Bank Referral Scheme to point businesses in the direction of alternative funding providers so they have access to working capital to support day-to-day operations, or by providing energy grants or tax cuts to help businesses manage spiralling costs.

Finally, although the prospect of a recession is daunting, it is vital that the government continues to encourage SME investment, both at home and from abroad, in order to support the medium to long-term health of the UK economy. Research has shown that investment is already being dampened by Post-Brexit and Post-Pandemic red tape, but we know that the UK’s SMEs are hungry to grow. Our research tells us that UK SMEs plan to invest £830 billion into the UK economy themselves, and external additional investment must be further encouraged in order to ensure that SMEs have the resources they need to help the economy survive and thrive.

As we sit on the precipice of a recession, it’s clear that the UK’s SMEs are in a precarious position, but it’s not too late to act. Now, it’s more important than ever that industries and the government work together to put in place meaningful measures that protect and help the UK’s valuable SME community.

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