FINANCE
BY HAYLEY KINGSNORTH , PARTNER AT AZETS hayley . kingsnorth @ azets . co . uk
Positioning SMEs at the heart of the UK economy
EMPLOYING MORE THAN 16 MILLION PEOPLE AND ACCOUNTING FOR ALMOST TWO- THIRDS ( 61 %) OF THOSE IN THE PRIVATE SECTOR , SMEs ARE THE LIFEBLOOD OF THE NATIONAL ECONOMY AND OF TOWNS AND COMMUNITIES ACROSS THE UK .
From family-owned businesses and ownermanaged companies to rapidly growing technology-led startups and scaleups , the SME community has diversified over the past two decades .
Following the pandemic , SMEs rebounded quickly by embracing digitalisation and pivoting their businesses . SMEs have the added advantage of being agile compared to larger companies , pushing the boundaries of what ’ s possible . In fact , that ability to embrace calculated risk has played a key role in instilling a culture of entrepreneurship that has been the hallmark of the UK ’ s economic success .
Buoyed by high levels of productivity and a focus on the future , they helped to fuel a 4.1 % increase in UK gross domestic product in 2022 . As we look to the latter half of 2023 , there remains much to be optimistic about .
Positive outlook
Owner-managed and family businesses are increasingly focused on driving innovation to secure future success . This will also be key in helping them to adapt to a rapidly evolving world . Digitalisation is now the number one business opportunity for SMEs . Firms in every sector are using new technologies to better understand and adapt to their customers ’ needs .
There is a growing appetite to invest in the future of businesses . Having previously used cash from the business or traditional bank loans to expand operations , we ’ re seeing SMEs turning to seed capital , private equity and venture capital for new investments . That appetite to scale up is likely to result in a growing interest in mergers and acquisitions for the remainder of the year .
Overcoming short-term challenges
Nevertheless , this overall sense of optimism should not be mistaken for complacency . Challenges lie ahead in the coming months that , if left unaddressed , have the potential to restrict the ability of SMEs across the country to reach their full potential .
Every aspect of doing business is becoming more expensive . Rising prices are putting a squeeze on already tight operating margins . The April 2023 increase to the national minimum wage ( NMW ) added an extra £ 1,600 a year for each full-time NMW worker aged 23 or over . Many SMEs are also struggling to attract and retain the talented people they need to embrace digitisation and bring new products and services to market at speed .
Although companies were kept on life support during the pandemic with the help of the government , companies struggling to service debts that have avoided bankruptcy through cheap borrowing costs are expected to be wiped out by the end of next year , following the recent surge in interest rates . It is likely that many will enter insolvency – that is the downside of a market economy – however , where a business can be salvaged via a pre-pack administration , a restructuring plan , or a company voluntary arrangement ( CVA ), jobs will be saved and there will be a revitalised entity to trade with on the other side .
SMEs at the heart of our economy
We have a unique opportunity to start putting SMEs at the heart of the UK economy . That requires unique support measures and investments by the government that are laser
focused on nurturing SMEs so they can thrive long into the future as well as tackling some short-term challenges . With the slowdown in the level of foreign direct investment , the need to diversify the UK ’ s economic model becomes all the more important .
Putting SMEs front and centre will make our economy more resilient and better placed to manage new risks that might emerge in the years ahead . But achieving this ambition will not be achieved by one government cycle alone . A sustained and deliberate strategy backed up by ambitious measures and the support of the UK ’ s business community will help us to seize the opportunity to create a balanced economic model . Embracing that model will enable SMEs to focus on what they do best – supporting jobs , fostering innovation and investing in the UK ’ s future .
We are here to help
If you have any questions in relation to navigating current challenges or would like to discuss anything mentioned in this article , please get in touch .
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