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Cashflow a growing concern for business leaders as SMEs face new challenges from rising costs and inflation

Capify’s latest Confidence Survey has found that cashflow and cash reserves are key business concerns for SME business owners, with over half lacking confidence in existing banking partners to meet future borrowing needs.

However, the survey also points to resilience and optimism in UK SMEs, with 60% expecting turnover and headcount growth in the next 12 months.

A growing number of business owners are being kept awake at night by worries over cash flow. In Capify’s Q1 2022 Confidence Survey, 37% of respondents cited cash flow as a major concern (up 14pp from 23% in Q4 2021). Whilst a further 13% were concerned specifically about non-payment of invoices.

The survey, in which the majority of respondents reported turnover of between £1m and £10m, also found just under 60% of SME owners worried about the impact of rising costs and inflation on their businesses.

This figure increased to 81% for respondents in food-related industries.


Cash flow challenges

Despite 56% reporting turnover growth in the past 12 months, the survey found more challenging conditions for the first quarter of 2022. Reflecting on business performance in Q1 2022, 37% of companies say they are behind on their targets.

These challenges appear to be contributing to a negative trend in the cash position of UK SMEs. Over half of the survey respondents (53%) were concerned about the levels of cash in the bank, whilst 43% report having less than £50,000 in the bank (an increase of 6pp on Q4 2021).

47% of respondents identify these working capital/ cash flow struggles as the primary driver for seeking external finance. But 52% of those surveyed state that they would not be confident of securing that finance from their traditional banking partners – with smaller and less established businesses particularly pessimistic.

Sourcing external financing

30% stated that they would not be at all confident that their bank would approve a loan application for their business. This increased up to 41% for businesses with an annual turnover of less than £250k and rose to 63% for those who have been trading for between 1-3 years.

A further 21% stated they would be somewhat confident.

Businesses based in the South East and North West of England were particularly pessimistic of their chances of a bank loan approval, whilst those based in London were more confident.

For those considering seeking external finance, responses reflected how time poor many SME owners are. The most important feature for respondents is the ease of the application and process, followed by the speed of the finance provider in reaching a lending decision.

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John Rozenbroek, CFO/CCO at Capify, said: “Cashflow continues to be a real – and growing- issue for UK SMEs”

“Businesses have endured a torrid time over the past two years. UK SMEs have had to develop a deep resilience to deal with the impacts of Brexit, the pandemic and global supply chain complexities”.

“Like all of us, UK business owners were hoping that 2022 would see an return to ‘normal’ business operations and growth. Unfortunately, the impact of rising prices and the tragic war in Ukraine is adding further challenges and worries to this vital part of the economy. There is a growing sense that they need help”.


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Optimism for growth in 2022

Whilst many SMEs made use of the Government’s support mechanisms during the pandemic, there seems to be a widespread belief that the Treasury is doing little to help businesses deal with the new challenges. 94% of UK SMEs believe that the Chancellor’s Spring Budget will have no positive impact on business stability.

Despite those concerns, the survey found cautious optimism in its SME respondents, with 57% projecting a growth in turnover in the next 12 months.

Exactly half (50%) grew their profits over the past 12 months – with larger SMEs faring better than their smaller counterparts. 39% of larger SMEs (£5m-£10m turnover) grew profits by over 10% compared to 31% of smaller SMEs (Under £500k turnover).

Additionally, 51% of businesses expect to grow their headcount 2022, up 6pp from 45% in Q4, with 14% aiming for growth of 20% or more. Attracting and retaining the right talent is clearly a major enabler for SME growth, with 48% looking to invest in their acquisition and development of personnel.

Mr Rozenbroek added: “It is encouraging to see businesses responding to the challenges of today with pragmatism and cautious optimism for the future. The fact that the majority of our respondents are projecting growth in 2022 is testament to the resilience they have had to develop over the past years.”

“To ease the cash crunch and address the staffing shortages, access to finance will play a critical role over the coming months. It is likely that things will get worse before they get better for the UK SME community, but at Capify we will continue to help small business owners in any way we can.”

The survey received responses from UK SMEs across a wide range of sectors, including construction, manufacturing, professional services, retail and IT services. Almost 60% of respondents had been trading for over 15 years.

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