By Geoff Maleham – Managing Director, Novuna Business Finance
Since 2014, Novuna Business Finance has researched the viewpoints of a representative sample of more than 1,000 small business leaders through a study called The Business Barometer. This quarterly study covers 13 industry sectors and 12 UK regions – and also explores the various stages of development that small businesses go through. By comparing findings each quarter, we have built a robust picture of the small business outlook, which offers a more nuanced understanding than a snapshot survey conducted at a single point in time.
Since the study’s inception, we have observed how small businesses have responded to seismic events such as devolution, changes in government, Brexit, a global pandemic, the war in Ukraine and – most recently – the cost-of-living crisis.
Whilst the percentage of small businesses (32%) predicting growth has remained resiliently consistent for four consecutive quarters, we have also spent time look tracking the initiatives that small business owners are working on in an effort to secure future growth. Nationally, the percentage of small businesses investing in initiatives to fuel future growth is considerably higher that the proportion of enterprises enjoying a position of growth in any given quarter.
Since Summer 2016, the percentage of small businesses working on future growth plans has remained consistent at around 70%. This perhaps offers a more accurate gauge of the true resilience of UK small businesses. In fact, during times of extreme strain, the percentage of small businesses focusing on growth strategies has actually increased. A case in point was the summer of 2020. After a dramatic drop in the percentage of enterprises predicting growth in Spring 2020 due to the impact of Covid-19 on the UK, falling from 38% to 13%, the percentage of businesses working on new initiatives to secure future growth surged from 71% to 85%.
The Business Barometer’s latest half-yearly findings on this topic underscore the fact that the drive among business owners to explore new avenues for future growth extends well beyond those enterprises currently on a strong growth trajectory.
Expanding businesses have also invested time in managing their costs, addressing late payments, and researching favourable funding deals. This good housekeeping has perhaps provided them with the solid foundation needed to plan further expansion. For businesses that are stagnant or experiencing modest contraction, the research suggests that it’s important to prioritise these matters. Cost control and reviewing funding options should be seen as precursors to growth, not just as defensive measures when a business is trying to reverse a period of decline.
Since Covid restrictions ended in the UK, five industry sectors have reached a three-year high in the percentage of small businesses investing resources to support specific growth initiatives: manufacturing (86%), construction (75%), agriculture (74%), IT/telecoms (74%), and finance/accounting (70%). These data points indicate sectors where small businesses are most committed to investing in initiatives aimed at securing long-term growth.
For those looking to invest in their growth capabilities, the data revealed a 12-month high in the percentage of small businesses seeking funding for new equipment, at 18%. In connection with this, 12% of small businesses are reassessing their funding arrangements with lenders. This was particularly pronounced in three sectors: agriculture (18%), media (18%), and hospitality/leisure (14%). Reviewing funding partners also emerged as a significantly more pressing issue in the North, with 29% of enterprises in the North East and 14% in the North West prioritising this, compared to 11% in the South East and 12% in the South West.
Looking back over the past seven years, the focus on improving cash flow, tackling late payments, and investing in new equipment has remained unchanged. This suggests that their perceived importance is consistent, regardless of the market context.
The pandemic shaped some of the growth initiatives that small businesses have prioritised, particularly at a time when many were forced to adapt to survive. For example, the focus on keeping fixed costs down peaked as a priority during the Covid lockdowns. Throughout 2017-2018, a consistent 50% of small businesses focused on managing fixed costs to facilitate long-term growth. However, this figure soared to 61% in Q3 2020 and further rose to 64% by Q1 2021. During this period, there was a sharp decline in the percentage of businesses looking to increase headcount, falling from 24% before the pandemic to 14% by Q3 2020.
Brexit may also have had a long-term impact on many small businesses. Tracking data from the Business Barometer points to a slow but continual decline since 2016 in the percentage of businesses prioritising overseas expansion as a strategy to support long-term growth.
Looking forward into 2024, our Business Barometer study will continue to help us understand the pressure points that small business owners face – and to help signpost how we can help them at critical moments. Supporting established small businesses with funding to help them fulfil their true potential is our mission.
Operating across a range of business sectors, we have a number of funding products available for established small businesses, sustainable project developers, franchise businesses and intermediaries. Further, our approach is different to that of a high street bank. As a business whose heritage is firmly based in manufacturing, we understand the cycles and the challenges that businesses go through and we devise solutions and tools framed by knowledge, empathy and understanding.
For more information on Novuna Business Finance, click here.
Research was conducted for Novuna Business Finance by YouGov at six-monthly intervals, every year since 2017. For each cycle of research, a nationally representative sample of more than 1,000 small business decision makers and owners of UK small businesses was surveyed. The research was conducted online.