The UK is a thriving nation of SMEs, accounting for 99.9% of the business population. And despite challenging conditions, there is still a high rate of small businesses being born. Shalini Khemka CBE, Founder and CEO of E2E, an entrepreneurial community dedicated to supporting SMEs through their business journey, talks about some of the common challenges faced by SMEs and what can be implemented to overcome them.
Throughout my career, I’ve had the privilege of working with numerous business leaders, gaining firsthand insight into the challenges they’ve faced along their entrepreneurial journeys.
In the current economic climate, several challenges stand out as particularly pertinent.
Inflation, for instance, has emerged as a significant concern, placing pressure on operating costs and decreasing profit margins. This inflationary environment demands for businesses to reevaluate their pricing strategies and operational efficiencies in order to maintain their competitiveness and financial stability.
Additionally, securing adequate funding remains a persistent challenge for SMEs. Accessing capital for expansion, innovation or even day-to-day operations can be an uphill battle, especially in periods of economic uncertainty or market volatility. SMEs often grapple with identifying and securing diverse funding sources tailored to their growth objectives.
Taxes represent another critical consideration for business leaders, with evolving regulatory landscapes demanding ongoing compliance efforts and strategic tax planning. Navigating tax codes and optimising tax structures is essential for preserving financial health and maximising profitability amid changing fiscal policies.
Moreover, the overall state of the economy introduces a layer of unpredictability, influencing consumer behaviour, market demand and business performance. Economic fluctuations, geopolitical events and global market dynamics can significantly impact SMEs, requiring agile strategies to adapt and thrive in dynamic environments.
Reflecting on the recent timeline, there have also been various external factors that have had a direct impact on SMEs:
Brexit – 2016
Brexit caused an increase in the costs of importing goods and hiring staff, with around 80% of SMEs facing the brunt of this uplift in price. Other challenges also included the tariffs for British exports, disruption in supply chains, decrease in EU workers, lack of confidence and a feeling of instability in the UK market.
COVID – 2019
From declining revenues, an inability to retain employees, postponing growth plans and defaulting on loans, the pandemic placed exceptional strain on SMEs. Businesses were forced into new ways of working, with many establishments having to shut their doors, work from home and implement new strategies to survive this difficult period. Whilst SMEs were amongst the quickest to react to the situation, they also faced a lack of incoming capital and urgency in accessing funds.
Russia/Ukraine conflict – 2023
As with the other geopolitical events, the conflict between Russia and Ukraine saw a significant relationship between price changes in the supply chain process of family-owned SMEs due to the ongoing conflict. With the rising cost of supply chains, SMEs will experience further difficulties with managing their supply chain processes.
Recession – Q3/Q4 2023
The UK found itself in a recession in the last quarter last year, after shrinking for two three-month periods in a row. The GDP experienced its weakest annual change since the financial crisis in 2009, having risen by 0.1% compared to the growth of 4/3% in 2022. Since 2022, the demand for finance by SMEs has lessened, mostly due to the fact that the downturn in the economy caused a lack of confidence levels in these firms. The withdrawal of the bespoke COVID-19 loan guarantee scheme has also contributed towards this trend.
Despite this, things are looking up, as the UK exits this period of recession with the fastest growth in two years, with the economy growing by 0.6% between January and March.
So, what can SMEs do? What support is available?
In light of the various challenges faced by SMEs, it’s imperative for them to explore available support systems and strategic approaches to help them navigate periods of complexity.
Being part of a network or community dedicated to supporting start-ups, scale-ups and SMEs on their business journey can be beneficial for those looking to grow and navigate any challenges.
E2E offers a wide variety of support services for businesses in this market, ranging from advice on key areas such as legal, marketing, taxes, accountancy, insurance, tech and data, as well as connecting businesses with NED advisors, or preparing them for investment.
Additionally, consider leveraging the support of government programmes and schemes that have been specifically designed to support SMEs, such as tax relief, grants and subsidised loans. Being aware of these programmes can provide both relief and support in times of growth and expansion.
SMEs should also invest in Digital Transformation, as embracing digital tools can increase operational efficiency, whilst investing in e-commerce platforms, digital marketing and data analytics can help SMEs reach broader audiences and adapt to changing market demands more swiftly.
By accessing the correct support, being aware of the state of the market and geopolitical events and embracing the technology of the future, SMEs can ensure their survival in difficult times, whilst also giving them the foundations to thrive in 2024 and beyond.