UK small businesses owed £32.1 billion in late payments

A new report has revealed that more than a quarter (26%) of small business owners in the UK believe that they will be forced to cease trading if the outlook for their business does not improve – a potentially detrimental blow to the UK economy.

The SME Insights Report, published by small business insurance provider, Simply Business, also found that 48% of SME owners believe the rising cost of living is the most glaring challenge facing their business. Over half (63%) say that rising taxes, interest rates and inflation are eating into profit margins, with many also grappling with trying to claw back thousands of pounds in unpaid bills.

Over half (52%) of SMEs anticipate a decrease in profits by up to 20% in 2023, with customer retention (26%) and lack of funding (25%) cited as factors affecting business. It comes as the Bank of England drives up interest rates to the highest level since the 2008 financial crisis, making access to financing near impossible for many small firms.

Skyrocketing energy costs

Further questions remain about the long-term effects of the increased cost of energy. Over a quarter (26%) of SMEs are now spending up to 40% more on energy each month compared to the previous year, with some reporting an astonishing 150% increase in their monthly energy expenses.

With reduced government support since April 2023 and many businesses locked into high energy tariffs, challenges with unpredictable fluctuations in price remain set to persist.

Resilience measures adopted by SMEs

To combat unfavourable financial conditions, SMEs are employing various resilience measures. Over a quarter (27%) are resorting to using personal savings to prop up their business, nearly a third (29%) of businesses seeking bank loans and 23% seeking a loan from family and friends to support their operations.

Meanwhile, two-thirds (62%) state that they plan to increase prices in the next six months in order to stay afloat during these tricky economic times, showing a 13% rise when compared to 12 months ago. Other measures include holding off employing new hires (23%) and putting expansion plans on hold (22%).

Jonathan Portes, Senior Fellow of the Economic and Social Research Council and Professor of Economics and Public Policy at King’s College London, said: “Two themes emerge from this report. First, the extent of the continued pressures on SMEs from the wider economic environment. While the energy price spike has abated, and labour shortages have eased somewhat, more generalised inflationary pressures mean that SMEs are being squeezed from both ends, with some input costs rising and consumer demand impacted as real incomes have fallen. Recent rises in interest rates will exacerbate both. Second, and more optimistically, the resilience of the sector despite all this; the vast majority of SMEs remain positive about their own prospects, not just for survival but for growth, and most also expect the economy to improve.”

Confidence amidst challenges

Despite the prevailing economic challenges, more than half (54%) of businesses remain optimistic that the UK economy will improve this year, and SME confidence continues to grow as three quarters (77%) express confidence about their business prospects over the next six months.