Amid warnings of a looming recession, small and medium enterprises (SMEs) put the breaks on spending and abandon plants to recruit new staff.
While back in March 37% of UK SMEs were looking at recruiting new staff, now only 12% are planning to do so, according to new data from the Association of Chartered Certified Accountants (ACCA).
The uncertain state of the UK economy has also prompted many small and medium businesses to put any growth plans on hold. While in April 94% of SMEs were looking into growing their business, now this has fallen to 75%.
With ACCA data showing that over the past two months 20% of small businesses have seen their growth slow, it’s no wonder that so many SMEs don’t want to recruit new staff.
Rising Costs Are The Biggest Challenge
According to Simply Business’ SME Insights Report, for which over a thousand small business owners were surveyed, 70% have named the rising costs across the board as their main challenge.
With 59% identifying specifically rising fuel and energy costs as the biggest challenge in 2022. While 36% have said they felt the increased tax and National Insurance contributions pose a huge challenge.
26% of small business owners find marketing and the ability to find customers a challenge, which is made difficult by the cost-of-living crisis. Lack of funds or access to credit is a big challenge for 22% of SMEs surveyed.
And 18% of the SMEs surveyed are still recovering from pandemic related losses, which puts pressure on their finances.
Because costs have risen so much, by over 1,000% for some businesses, 54% of SMEs are concerned they might have to close down this year, according to Simply Business’ report.
A Third Of UK SMEs At Risk Of Folding
It seems a wise decision not to recruit new staff, given that one in three UK small and medium-sized firms will have to close down this year, unless they access new funding, according to research by financial comparison site NerdWallet.
Even more worryingly, the data suggests that 32% of SMEs do not have a financial plan set up to survive over the next 12 months.
While 31% of small businesses in the UK applied for at least one form of business finance in the first six months of 2022, 41% have said that finance has become less accessible compared to a year ago.
This sentiment is borne out by the fact that 20% of SMEs who have applied for finance have been rejected at the beginning of 2022, even though they had a good or excellent credit score.
The results of the research are also supported by figures from the Insolvency Service, which show a sharp rise in company insolvencies during the second quarter of 2022.
In the month of April 2022, there were 13% more insolvencies than in the three previous months and 81% more than in the same time last year.
The majority of these company insolvencies were voluntary liquidations, which have reached the highest level since 1960. Read more about the current business landscape in our 81 UK Small Business Statistics.
SMEs Calling For Government To Change Energy Price Cap
With energy and fuel prices the biggest challenge for most small businesses, 59% want the UK Government to review or reduce the energy price cap, according to the SME Insight Report by Simply Business.
Although the energy price cap does not apply to businesses, their energy costs have risen considerably. And increased energy bills put financial pressure on households, which diminishes the purchasing power of customers.
And if consumers have to restrict themselves to only buying essentials, many small businesses will find it hard to hold on to their customers.
[…], whilst the energy price caps do not apply to businesses, owners are seeing their energy bills increase overall. The surging cost of fuel and energy, alongside the overall rising cost of living, will understandably see households cut back on non-essential spending.Alan Thomas, UK CEO at Simply Business
While most SMEs surveyed want the Government to review or reduce the energy price cap, 21% want a review or extension of the VAT cut. And 12% ask the Government to review or reduce the National Insurance Contribution.
However, Boris Johnson has repeatedly said that his Government will not make any fiscal decisions, as this is for the next Prime Minister to decide.
And the two Conservative leadership candidates, Liz Truss and Rishi Sunak, are at odds about how to deal with the economic crisis.
Meanwhile, Labour leader Sir Keir Starmer has said his party’s plans to tackle the rising living costs will ensure that households won’t have to pay any more for energy, as he proposes to freeze the energy price cap.
The freeze of energy bills would be paid for by backdating the windfall tax to January, scrapping the energy rebate and other pledges made by the Tory leadership candidates and by reducing inflation via the lower energy bill.
What the Government will do to help households and small businesses in this economic crisis will have to be seen, as only on 5 September, when the new leader of the Conservative Party – and Prime Minister – is announced, that any policy will be announced.