Our latest survey shows a small dip in UK SME confidence. After a modest improvement in confidence in the first quarter of this year, the continued pressure of inflation and rising costs has dampened the spirits of many of our respondents.
Against this backdrop however, our findings reveal modest improvements in those smaller businesses who are reporting turnover and profit stability and/ or growth, and a corresponding decrease in those who are reporting negative quarter-on-quarter turnover and profit performance.
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).
(fall of -0.35 since Q2)
Most represented sectors:
21
Average number of employees
Average cash in bank position:
£79,554
Average turnover of respondents: £1,705,651
Nearly 60% of businesses have been trading for over
15 years
The Q3 2023 Survey discovers a SME community still struggling with the myriad challenges related to inflationary pressures and suppressed consumer confidence. Very few businesses are trading on the same basis as the previous quarter. Whilst there’s a modest improvement in those reporting turnover and profit growth increase in those reporting reduced turnover and profit.
The survey found that the average cash in bank position has fallen in across the third quarter.
On average, SMEs are reporting a cash balance of £79,554 in their business, down £22k on the previous quarter.
Despite the overall fall in confidence, the number of SMEs reporting that they were on target for the quarter increased by 5pp.
Equally positive was the increase in the number of SMEs reporting that they were currently tracking ahead of their targets: 31% compared to 22% in Q2.
An integral part of keeping on par with – or ahead of – forecast is ensuring that discretionary costs are under control.
In response to mounting inflationary pressure nearly half of firms (49%) have reduced spend on professional subscriptions and 48% have reduced marketing and advertising outlays.
Consistent with previous surveys, we find SME owners being kept awake at night by a range of different worries. Some are directly linked to the economic cycle and others are more evergreen.
The top five concerns for SME owners were:
Rising cost/ inflation
Managing red tape
Work life balance
Cash flow
Staffing/ resource
Despite the improvements in trading against forecast, outlook for the year ahead appears dampened in survey respondents.
The level of businesses expecting turnover growth in the next twelve months has fallen by 5%, to 53%. Whilst those expecting profits to increase over the same period has also fallen by 2pp to 50%.
There is slightly more optimism when we look at SMEs’ hiring intentions however. 57% of firms expect to increase their headcounts over 2023/4, a
significant 16pp increase on the Q2 survey finding.
It seems that at least some of this headcount growth may be to address existing staff shortages rather than expansion. Indeed, only 50% of firms are planning business expansion over the next 12 months (compared to 59% in Q2 2023).
Of those who aren’t expecting expansion, 23% cite cashflow and working capital as a barrier to growth.
Overall, the number of areas in which respondents were looking to invest has increased quarter-on-quarter. Our survey found that SMEs were looking to invest in 2.55 areas across their business (compared to 1.82 in Q2 2023).
The survey reports that, on average, SMEs will commit £44,659 to areas of investment this year, a 10% increase on the £40k of estimated spend in Q2 2023.
Perhaps in recognition of continuing issues with the labour market, investing in people (training and hiring) was the most frequently cited area of planned
investment.
Despite this increase in appetite for investment, the Survey’s overall outlook score showed a sharp decrease on the previous quarter. The Q2 Confidence Score now sits at -4.00 compared to -0.35 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 a worrying 57% of firms not confident of being able to secure external finance from their existing banking partners.
Two in three owners reported having required external funding to help cash flow issues and/or working capital shortfalls in the past. Only 33% of those individuals secured that funding from a bank, whilst 50% found financial support through an alternative lender or other, non-traditional, sources.
For those who are expected to require external funding in the near future, 50% would use that money for advancing the business’ technology or for financing new equipment. 38% feel that that working capital or cash flow challenges would need an injection of finance – a 5pp increase on Q2 2023.
