If more UK small businesses adopted digital financial tools, their growth could add £25.3 billion to the economy and close the productivity gap with countries like France and Germany, according to new research.
SMEs spend an average of £63,000 a year managing their finances, but if more were to use digital solutions for routine tasks such as bookkeeping, invoicing and tax returns, they could use the time and money saved to make more sales, the study by Starling Bank said.
The report found that while 84% of SMEs already use digital tools for some financial tasks, 48% do not expect to increase their usage, often due to entrenched processes and concerns over cost. Where digital tools are used for financial tasks, SMEs reported an average time saving of 41% over manual processes.
The study said if SMEs’ use of digital financial tools was increased, an economic gain of £25.3 billion could be achieved. This is nearly double the economic contribution of the UK’s agriculture sector and could help close the productivity gap between the UK and other G7 countries.
Adeel Hyder, managing director of SME banking at Starling Bank, said:
“Small businesses are the backbone of the British economy, but they are being held back by a ‘hidden tax’ on their time. Our research shows that a large number of SMEs believe digital tax software alone costs nearly £12,000 a year, when in reality, that’s 15 times the price of some high-end solutions.”
Starling made five recommendations to the government:
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Create a new online ‘financial tool cost calculator’ within the government’s Business Growth Service to show SMEs the cost of digital financial tools.
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Prioritise micro businesses and female-led companies in all government digital adoption pilots. The study found that 27% of female-led companies say they have good opportunities to learn from other SMEs compared to 41% of male-led businesses.
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Co-develop new advisory tools and communications with industry bodies and accountants to ensure the needs of small businesses are understood.
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Prioritise the uptake of effective core digital financial tools, especially those which save SMEs the most time and money.
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The new Business Mentoring Council should make digital adoption a main focus of mentoring support for micro businesses.