UK Recession: Another Tough Time Ahead For SMEs

22 February 2024 – With optimism at an all-time high, small businesses are in for a reality check. A recent report by Small Business Britain indicates many struggles in a UK recession that may cripple SMEs.

The Small Business Britain survey involved 1,000 small businesses, while 40 were personally interviewed in Q3 of the previous year. Moreover, signs of a UK recession were recorded in the second half of 2023. Interest rates are also higher than ever. 

Most SMEs need help with business plans

42% of start-ups need assistance to create a business plan. And with 49% of SMEs thinking a good business strategy will turn things around within the next 12 months, it’s a good idea to make an effective one. 

Launching a start-up is already chaotic enough. A business plan will guide budding entrepreneurs based on growth benchmarks and help motivate them. It is a requirement for every start-up.

Sustainability not a top priority for small businesses

As consumers place higher importance on company values and sustainability, it would also be wise for start-ups to prioritise them in business plans.

Unfortunately, almost 40% of start-ups did not consider sustainability in the early development stages. Furthermore, initial costs and limited access to funding may deter small businesses from implementing sustainability practices.

Alternative financing options out of reach for SMEs

British small businesses are risk-averse to cash, as 73% of start-ups rely on their personal funds to get started. 10% borrow from friends and family, while only 6% leaned on bank loans to start up. 

As the business matures, owners become more confident in looking for financing alternatives. However, the problem lies in accessing these options. 

Closing this gap will enable small businesses to obtain growth opportunities without relying solely on their funds. This option would be an ideal solution for funding during the UK recession.

Skills gap more prevalent in start-ups

Most new businesses start as a one-person show or small team with flexible roles. Founders may be well-versed in their fields but may need to improve in critical areas for running a business. 

In fact, 50% of start-ups wanted more assistance with sales and marketing, 35% with business planning, and 32% needed guidance with finance.

SMEs place even more weight on these skills as they become more established. 53% still want more help with sales and marketing, while 32% still need direction for managing finances.

Meanwhile, 34% of small businesses admit they need support for digital skills. 

It’s not uncommon that skill development takes a back seat as profit becomes a priority. Furthermore, as responsibilities become blurred, upskilling may overwhelm staff who wear many hats.

AI and automation are top considerations from the outset

CMA Sets Out Key Principles For Generative AI In Business

Automation is listed as one of the top regrets established businesses have. Many hours and headaches could have been spared had they automated early in the business’s development. 

It is usually utilised for social media, marketing, and email automation. With the advent of AI, small businesses have a vague idea of how it can revolutionise running a business, especially in a UK recession.

From automatic invoices to writing copy for products, SMEs have only just begun scratching the surface of AI’s potential. 

Despite all the fanfare, businesses must remember that AI cannot replace critical functions. It can supplement a business but needs sense checking and constant calibration for a specific purpose.

It must also be forward-looking, as AI bases its insights on past data.

Entrepreneurs feel alone during crucial stages of business development

Starting a business can be a “you versus the world” scenario. The report confirmed that start-ups were hesitant to ask for assistance.

A measly 20% pursued support for essential steps in setting up a business, e.g., HMRC filing, business registration, website creation, and sales. 

When they ask for help, information and support are often from informal sources. 35% of those surveyed ask for advice from family and friends. Interestingly, 27% admitted their local community aids them. 

Novice business founders may not be as lucky to have someone to ask for advice. Only 23% had a mentor when starting, despite it being one of the most crucial benefits for a small business. It’s not for lack of want, as 37% said they would have found this helpful.

As the business matures, 33% still want a mentor, while 29% reach out to family and friends instead. Unfortunately, 27% were quoted as having not received any business support.

Our Opinion

Starting a business is exciting and sexy, something you can throw yourself in with gusto. But once the novelty wears off, you reach a place that we here at Business4Beginners call ‘The Lonely Middle’.

That’s when things can get tough, when many new business owners wonder if it will work or if they should just chuck it in. Tools like a business plan can help, because it gives you direction. But when the reality of running a business sets in, it can be difficult to focus on the things that need doing.

Often we instead concentrate on the things we like doing, because we are in our comfort zone. But these might not be the things that will grow the business and lead it to success. We have been there ourselves.

Having to learn new skills to meet the demand of a business can be overwhelming. Things like marketing or finance management are vital if you are to succeed. But when you try to keep afloat, especially in the current UK recession, learning new skills seems too high of a mountain to climb.

And as the survey has shown, asking for support doesn’t come easy to new business owners. Family and friends are great, but they don’t always fully understand what you are going through. That’s why we call it “The Lonely Middle”, it’s a lonely place. But it doesn’t have to be.

We created “The Lonely Middle Club” to help small businesses through this tough phase to the rewarding place of success. Get support with all the vital things you need to grow your business and get the support of a community of small business owners.

Together we can get through “The Lonely Middle”.

Lost the buzz for your business?

Starting a business is exciting. Succeeding is rewarding. The bit between is hard, repetitive, and full of self-doubt. 

The Lonely Middle Club (From Business4Beginners) helps you through it:

Get support and advice from other small business owners

Remove the self-doubt that’s holding your business back

Learn techniques and strategies to grow your business faster

Be inspired with our exclusive ‘swipe’ file and AI-powered tools

No pressure – work at YOUR pace, towards YOUR goals

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The Business4Beginners news team consists of several writers who each have their own unique experience in businesses. By keeping their fingers on the pulse, they bring you the latest in news and trends impacting small UK businesses.
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