(+0.44 since Q4 2023)
COO/CFO
It gives me great pleasure to introduce the latest findings from our quarterly Business Confidence Survey. More than 250 SME business owners took part in our research. We had responses from every sector, industry and region in the UK. We asked respondents to reflect on their business performance across the first quarter of 2024 and to look toward their prospects for the year ahead.
Now in its fourth year, the survey gives us an invaluable opportunity to better understand the challenges facing SME owners today and gauge their hopes and fears for the future. As always, we are enormously grateful to those who take the time to contribute.
Our latest analysis shows that UK SME confidence improved in the first quarter of 2024.
Nearly half of surveyed businesses predict revenues to increase in the year ahead, while two in three SMEs are expecting to add headcount in 2024.
Furthermore, perhaps buoyed by the recent fall in inflation, the prospect of reduced interest rates and a spike in consumer spending, those questioned showed a growing appetite for investment. Overall, the number of areas in which respondents are looking to invest has increased quarter-on-quarter.
Despite this renewed confidence, the survey also reveals a picture of continuing operating challenges, with increased supply chain costs and ongoing market volatility still lingering on Q1 trading performance. Nearly half of respondents record a reduction in profitability in the first quarter of the year, while a similar number confirm they were trading below forecast.
Understanding how these factors impact smaller businesses enables us to better serve them. We use these insights to help us tell the SME story; to raise awareness of what help is required from legislators, advisory professionals and finance providers. The responses help us adapt our own offering and allow us to deliver the best service we can to support and service the specific requirements of smaller businesses.
While it’s too early to know whether the survey’s positive indicators are a sign that the economy has turned a corner, there is certainly cause for cautious optimism.
Employing nearly 17m people and generating £2.4trn annually, SMEs play an absolutely integral role in the UK economy. The link between access to capital and the ability for SMEs to survive and thrive is evident. So it’s disheartening to see how many don’t feel confident in their ability to secure much-needed funding from their banking providers. Ensuring these businesses have adequate access to fast, simple and responsible lending can be a real catalyst to their potential.
Since 2008, Capify’s innovative and flexible funding solutions have helped thousands of UK SMEs with access to capital at the points they need it most. Whether that’s to meet the challenges of today, or the opportunities of tomorrow, we are committed to helping our UK customers grow and prosper.
Most represented sectors:
29
Average number of employees
Average cash in bank position:
£71,741
263 survey responses from a range of small business across the UK
Average turnover of respondents:
£1,475,382
Nearly 60% of businesses have been trading for over
15 years
Although there are signs the period of high inflation may be coming to an end, there are still a multitude of challenges impacting UK businesses in 2024. Factors ranging from high interest rates and reduced consumer confidence to geopolitical instability and supply- chain challenges, all hinder the ability for business to forecast – and deliver – revenue and profitability. This is supported in our latest survey, as findings paint a picture of continued trading volatility. Indeed, only around a quarter (23%) of businesses reported trading on the same basis as the previous quarter.
39% reported a quarterly reduction in turnover
(10pp increase on Q4 2023)
37% saw turnover grow in the past quarter
(8pp drop on Q4 2023)
The number of SMEs reporting that they were behind target for the quarter fell slightly in Q1. On the flip side however, the number of SMEs currently tracking ahead of their targets fell to 21%, compared to 25% in Q4 2023.
Reduced cash reserves have been a significant contributor to the overall low level of confidence in recent surveys, and these latest results show cash challenges persist. Indeed, the cash in bank position has worsened in the first quarter and SMEs are now reporting an average cash in business balance of £71,741, a fall of £21k on the previous quarter. After an improvement in Q4 2023, this represents a return to falling cash reserves, a trend which began in Q1 2022 when business finances began to feel the impact of energy price shocks.
Any concerns around cash reserves are undoubtedly accentuated by issues related to cash collection but the survey reveals signs of better payment practices that may improve cash flow in quarters to come. Although 71% of businesses report that they have been impacted by late payment of invoices, just over a quarter of business owners (27%) stated that customers and clients are taking longer to pay their invoices than in previous years, a reduction of 3pp on Q4 2023. Furthermore, the amount owed to SMEs in outstanding invoices has fallen by £6.5k to £25,014.
Cost control has become a necessary tactic for many businesses in recent years. As costs increase in the supply chain, in line with the period of high inflation, SME owners have taken steps to reduce outgoings on discretionary costs such as travel and entertainment, professional advice and marketing and advertising outlays.
There is evidence to suggest that SMEs are developing a growing resilience to the turbulence of the last few years. The average number of issues keeping smaller business owners awake at night has fallen to 2.40 – a reduction of 0.31 on Q4’s finding.
Some of the major shifts in SME worries in Q1 2024 were:
Cash flow
Impact of technology
Work-life balance
Supply chain issues
Finding new customers
Although the headwinds of the past few years are still impacting business, the outlook for the year ahead is more bullish. Perhaps buoyed by positive indications that the worst of the most recent economic challenges may be behind us, nearly half of UK SMEs are expecting turnover to grow in 2024. Roughly the same number (45%) expect profits to increase in the same period.
There is even more optimism when we look at SME’s hiring intentions. An impressive 67% of firms expect to increase their headcounts over 2024, a significant 29pp increase on the Q4 survey finding.
Of those firms expecting headcount growth, the departments in which roles are expected to be added are sales/marketing (50%) and technical (37%).
In terms of overall ambition, just under 40% of SMEs are planning to expand their operations in 2024 – a 10pp drop on the previous quarter. Whilst just over 16% are simply aiming to survive the year ahead.
Of those who aren’t expecting expansion, 24% cite cash flow challenges and lack of working capital as a barrier to growth (a 7pp decrease on Q4).
In a further positive indicator, the number of areas in which respondents were looking to invest has increased quarter-on-quarter. On average, SME owners are looking to commit to 1.92 investment activities or areas in the next 12 months. This is a small increase on the previous quarter, where owners expected to be funding 1.82 separate investment areas. Continuing the trend of a cautious approach to any recovery, the amount SMEs expect to commit to these investment areas has slightly increased, from £21,169 in Q4 2023 to £21,993 in Q1 of this year.
In recognition of the growing importance of technology to all business, no matter their size or sector, automation and technology (33%) were the most frequently cited areas of planned investment. One in three businesses are also planning on investing in the training and development of staff – underlining the vital importance to SMEs of attracting and retaining the right people.
This increase in investment appetite – alongside a more positive outlook in the trading environment – has contributed to a more positive overall confidence score. The Q1 Confidence Score now sits at -3.66 compared to -4.10 in the previous quarter
The survey uses business owners’ responses on business performance, confidence, and investment intentions to produce an overall confidence score between -10 (very unconfident) and +20 (highly confident).
SME access to finance continues to be problematic, with 71% of firms not confident of being able to secure external finance from their existing banking partners.
Nearly three quarters of owners (73%) report having previously required external funding to help cash flow issues and/or working capital shortfalls. Only 30% of those individuals secured that funding from a bank, while 60% found financial support through an alternative lender or family and friends.
For those expecting to need external funding in the near future, 47% feel that any injection of finance required will be for technology investments. More than a quarter (28%) would seek external finance to fund new premises or renovate existing ones.
