A Picture of the Current SME Landscape in the UK
The recent from the Small Business Index (SBI) report for Q2 2023 issued by the Federation of Small Businesses (FSB) paints a concerning picture for SMEs in the UK.
The recent from the Small Business Index (SBI) report for Q2 2023 issued by the Federation of Small Businesses (FSB) paints a concerning picture for SMEs in the UK. Following a brief respite in Q1, the SBI has dipped to -14.2, indicating a return to contraction after a year that had already witnessed three consecutive quarterly declines in 2022.
Like everyone else, small firms experienced the consequences of this disruption in various ways, ranging from decreased consumer spending to increased interest rates on loans and mortgages and energy costs.
Every UK region, except for the North West, experienced a decline in their SBI scores between Q1 and Q2, showcasing the pervasive nature of economic pessimism. The uniform decline across all major industries further underscores this shift in sentiment amongst small businesses.
A striking feature from the report is the net balance of SMEs indicating revenue growth. At -8.6% in Q2 2023, this marks the fifth consecutive quarter of negative reading. This prolonged trend accentuates the ongoing challenges stemming from weakening domestic demand. Moreover, even exporting businesses aren’t immune. Despite a slight improvement, their net balance remained negative at -2.9%, implying continued pressures from the global economic environment.
Operating costs for small businesses remain a significant hurdle. Although the Q2 reading of 80.4% businesses reporting a rise is a retreat from previous quarters, it's still historically elevated. Utilities continue to be the primary culprit behind rising costs. However, there has been a notable shift with more businesses attributing changes in costs to financing, likely a repercussion of the recent interest rate hikes.
Yet, amidst these tribulations, a silver lining emerges. Over half of the small businesses, 51.3% to be exact, are optimistic about growing in the forthcoming year.
This uptick in optimism is notable, especially against a backdrop where the domestic economy is viewed by 61.5% of respondents as the most significant barrier to growth. Another point of concern is the changing sentiment on credit, worsened by recent interest rate hikes. The percentage of businesses with positive views on credit availability and affordability dipped to 11.8% in Q2, reflecting growing apprehensions.
To navigate these challenges and foster resilience, health, and competitiveness, small businesses can benefit from tools like Credit Passport. Unlike traditional credit scores, Credit Passport is specifically designed for small and medium-sized enterprises (SMEs) and powered by open banking. It utilises real-time bank data to update businesses' credit scores, providing a comprehensive view of their creditworthiness and financial health.
By leveraging the insights provided, small businesses can make informed decisions about credit and financing options. They can better manage their cash flow, negotiate more favourable lending terms, and identify areas for improvement.
Equipped with insights, businesses can make judicious decisions regarding credit and financing. It is not just a tool, but a companion that aids businesses in staying resilient, financially sound, and competitive in this ever-fluctuating business environment.
