SMEs preparing for tough times ahead

Capify’s latest quarterly survey finds a small improvement in SME business confidence despite gathering economic headwinds. But survey also points to operating challenges amidst falling profitability and concerns over rising costs.

SME Business confidence has improved for the first time in over 12 months, a new survey from Capify has found. The Q3 Business Confidence Survey revealed that SMEs were more bullish than in the previous quarter, despite the looming recession.

The Survey which canvassed the insights of 318 SME business owners on areas of business performance, outlook, and investment intentions, uses the data to produce an overall confidence score between -10 (very unconfident) and +20 (very confident).  The confidence score now sits at 5.64, a 7-point increase on the Q2 2022 score of -2.70.

John Rozenbroek, CFO/CCO at Capify, said: “It is great to see an improvement in confidence from UK’s vital SME community. It seems that businesses have started to respond well to the perception of more stability in markets and government, although there remains a long way to go. Our last survey was conducted between August and September this year – a period of unprecedented political and economic upheaval – which clearly showed in the findings.”

“Over the years, UK smaller businesses have demonstrated its unique resilience and adaptability and our most recent findings underline a stoicism in the face of adversity in trading conditions. These conditions may not yet have hit business as hard – or as quickly – as many feared and this, in part, helps explain the more optimistic outlook. But it also speaks to the ongoing characteristic of resilience – and that UK SMEs may now feel more aware and perhaps prepared for the challenges ahead, following the learnings resulting from the previous years”.

A boost to investments

A major contributor to the improved confidence scores, was the finding that many respondents were planning on increasing investment over the next 12 months. When asked about areas in which they intend to invest over the coming year, UK SMEs identified an average of 2.63 initiatives, compared to 1.41 in Q2 of this year. Perhaps reflecting the ongoing labour market challenges, 42% of firms intend to invest in training and the retention of staff, whilst 29% planned investments in marketing and customer acquisition.

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Perhaps reflective of the growing importance of Environmental, Social and Governance (ESG) considerations amongst customers and investors, 32% of respondents are planning on investing on green and sustainability initiatives – a 22pp increase on Q2 intentions.

The score was also boosted by 46% of respondents reporting turnover growth in the past 12 months – up 12% since the last survey. Correspondingly, the cash position for Britain’s SME has improved in the past three months. The average level of cash held in the bank has risen by nearly £8,000 since Q2, from £95,726 to £103,564. At the same time, the number of owners concerned by their cash position has fallen from 55% to 53%.

Challenges ahead

Despite these positive factors, there are still significant operating challenges blighting SME performance. Rising costs and inflation continue to cause sleepless nights for 61% of SME owners and price increases throughout the supply chain are impacting business performance, with 44 per cent of respondents reporting a reduction in profitability in the past 12 months, an increase of 4pp.

These challenges for the here and now are echoed in future projections, with turnover and headcount growth projections both lower than in previous surveys. The number of respondents expecting their turnover to grow in 2023 has fallen to 53%, an 8pp drop on the previous quarter. At the same time, those expecting to grow their headcount has fallen by 3pp to 36%.

Finding finance

Access to finance continues to be a major problem for SMEs. Alongside the rising cost of debt, there is a growing concern that bank lending criteria is preventing SMEs from accessing the finance they need. Nearly one in three respondents identified working capital and cash flow management as a reason for requiring external finance, but only 45% of respondents felt confident they would be able to secure that finance from their bank

“Finance availability is critical to UK SMEs” said Rozenbroek. “Whether it is needed for short-term management of cash flow or working capital, or for longer-term investment opportunities, the consequences of failing to fund SMEs are grave.”

“At Capify, we understand the uniquely challenging climate that SMEs are currently operating in but we also share the optimism of a better future. We will continue to be there to support SMEs with finance provision for both today’s challenges and tomorrow’s opportunities.”

At Capify we offer a range of business loans to help support your business through high and low periods. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.

About the survey

The Capify Q3 Confidence Survey ran in October 2022 and received over 318 responses from UK SMEs across a wide range of sectors, including IT, busines and professional services, agriculture, manufacturing, retail, transport and telecommunications.

The Capify Business Confidence score is a weighted indicator based on collating SME respondent data on business performance, profitability, future performance outlook, business confidence and forecasted growth.

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SME Publications/ SME XPO 2024