Survey highlights resilience and optimism of UK SMEs

The latest Small Business Survey report, released today, offers a comprehensive view into the performance, challenges, and future plans of small and medium-sized enterprises (SMEs) in the UK. Based on a sample of 7,799 SME employers, the 2023 report sheds light on a range of factors influencing the business landscape, from employment growth to financial access, innovation, and long-term strategies. Despite ongoing economic challenges, UK SMEs continue to display remarkable resilience and optimism about the future.

Key findings from the Small Business Survey include:

Employment growth. One of the most striking insights from the report is the increase in employment among SMEs. Despite widespread economic pressures, 28% of SMEs managed to expand their workforce in 2023. This growth demonstrates that many small businesses are adapting to market demands, even in a challenging financial environment.

Positive sales growth. Sales growth emerged as another notable area of resilience. Around 40% of SMEs reported an increase in sales over the past year. This figure is a testament to the agility and adaptability of smaller businesses, which have had to pivot their offerings and adjust their business models in response to shifting consumer demand and market conditions.

Rising costs. While employment and sales growth have been positive for many SMEs, rising costs remain a critical obstacle to growth. Energy prices have been identified as the most significant challenge, with 56% of businesses citing this as a key issue. The increase in operational costs has placed considerable strain on margins, particularly for industries with high energy dependence such as manufacturing and retail.

Demand for external finance. Access to finance continues to be a crucial factor for SME growth. According to the survey, 73% of SMEs utilised external finance in 2023, underscoring the importance of financial support in navigating economic uncertainty.

The most used form of external finance in 2023, as it was in 2021 and prior to 2020, was credit cards (37%, down one percentage point on 2022)), followed by bank overdrafts (28%, up one percentage points on 2022) and leasing or hire purchase (24%, as in 2022). 

However, the report also highlights significant barriers to obtaining finance. Many SMEs face high interest rates, stringent eligibility requirements, and a lack of alternative funding options, which hinder their ability to secure the necessary capital for expansion and operations.

Impact on growth plans. The combination of rising costs and difficulties in accessing finance has impacted the growth plans of 55% of SMEs. Inflation, energy costs, and higher interest rates are limiting opportunities for investment in innovation, workforce development, and infrastructure, slowing the pace of planned expansion for many businesses.

Innovation activity and business practices. Innovation remains central to SME competitiveness, with a substantial number of small businesses investing in new products, services, or processes despite economic headwinds. The survey also sheds light on key business practices such as training, which continues to be a priority, as well as the increased focus on sustainable and socially responsible operations among social enterprises.

Optimism about future growth. Despite the obstacles they face, many SMEs remain optimistic about their future. Notably, 80% of businesses in the retail and wholesale, manufacturing, and administration sectors expressed confidence in their growth potential over the coming years. This optimism reflects not only the determination of UK SMEs to weather current challenges but also their belief in the long-term sustainability of their business models.

Sector-specific insights. The report also breaks down trends by sector. Retail and wholesale businesses, along with manufacturing and administrative services, showed the most optimism for future expansion, with 80% indicating plans to grow. These sectors appear to be more confident in their ability to adapt to market conditions, with many focusing on innovation and exploring new markets as pathways to sustained growth.

Looking ahead: The path forward for UK SMEs

The 2023 Small Business Survey underscores the resilience of the UK’s small and medium-sized enterprises in the face of significant challenges. While rising costs, particularly energy prices, are slowing growth for many, the widespread use of external finance, ongoing innovation efforts, and a commitment to workforce expansion highlight the determination of SMEs to push through adversity.

The survey also reveals the critical need for better access to financing. Many businesses are keen to expand but are constrained by the high cost of borrowing and limited options for funding. Addressing these challenges, whether through more accessible finance options or government support, will be crucial in unlocking the potential of the UK’s SME sector.

“Against the odds, small businesses experienced a relatively stable period compared to previous years, as 28% increased their workforce sizes and 40% experienced positive sales growth.

“What’s clear is that access to capital remains essential for these firms, with 73% citing their reliance on some form of external finance to fuel growth for their business. And while obstacles to growth do still remain – rising costs, high energy prices, competition – looking ahead it’s about how we now capitalise on SMEs’ ambitions for growth.

“As the October Budget looms, and with some 80% of SMEs across retail and wholesale, manufacturing, and administration sectors looking to expand, the Chancellor must wholeheartedly prioritise pro-business policy. Only then can we ensure that SMEs are able to continue their role as the driving force behind the UK’s economic recovery.”