92% of SMEs say rising costs are impacting profitability with inflation still out of control.

92% of SMEs say that rising costs are impacting their profitability, with 32% saying it is a big problem, shows a new survey (sample size 528 ownermanaged businesses, 1-6 November 2022) by Top 15 accountancy firm, Moore UK.

With UK inflation having hit a 41-year high of 11.1% in midNovember, businesses are increasingly struggling against a rising tide of costs. By far the biggest problem for SMEs is the increasing cost of energy, with 55% of them saying it is the issue they are most concerned about. This ranks a long way ahead of the cost of petrol and diesel (34%) in second place, the survey found.

Maureen Penfold, chair of Moore UK, said: “With inflation still rising, SMEs are under a huge amount of pressure. The cost of energy is a major pain point for virtually every business. For some it is going to test their ability to survive. The Autumn Statement didn’t provide the good news that they were looking for – it’s going to be a long winter for a lot of smaller businesses.”

Moore’s quarterly survey of ownermanaged businesses also revealed that only 38% of SMEs are confident in the new government’s ability to deliver economic growth in 2023, Moore’s November survey having been completed after Rishi Sunak became prime minister.

With the UK economy sliding into recession amid political instability in the second half of 2022, many small business owners appear not to believe that the current government will be able to return the economy to growth next year.

“The changes of government over recent months seem to have dented small businesses’ confidence. The majority of them don’t believe we’re going to see economic growth in 2023 under the present leadership,” added Maureen Penfold. “Obviously it is early days for the new government but as yet SMEs are not confident that growth can be delivered in the near term.”

Additionally, Moore’s survey shows that owner-managed businesses have been cautious on increasing prices even as inflation continues to rise. Only 40% of businesses polled by Moore say they have increased their prices in the last three months. Among that group the majority said that they had only increased their prices by 3-5% - less than half the current level of inflation. In addition, only 37% of businesses surveyed are planning to raise their prices in the next three months.

“For a lot of smaller businesses, inflation is far more something they are experiencing than something they are contributing to,” said Maureen Penfold. “Businesses are not just putting up prices in line with inflation – they are aware that their customers are already being squeezed hard.”

Moore’s survey also indicated that 51% of businesses polled are planning on increasing pay for people in the next three months. This includes 57% of businesses who already gave out pay rises in the last three months.

“Recruitment and retention of people is still a key challenge for a lot of owner-managed businesses. Some are finding that they are having to raise pay repeatedly to avoid losing people. While that may ease a little if the economy continues to slow, most smaller businesses aren’t seeing that yet,” concluded Maureen Penfold.

GRIM PICTURE

Responding to the chancellor’s recent autumn statement, UKHospitality chief executive Kate Nicholls, said: “The chancellor painted a grim picture of what we’re facing as a nation and Britain’s hospitality businesses are already in the midst of severe economic turmoil.

“Survival this winter is the priority for venues across the country and there is the very real possibility that a significant proportion of our sector will not survive the winter…

“I’m pleased that the chancellor has listened to the vast majority of UKHospitality’s proposals on business rates, covering a freeze in the multiplier, extended reliefs and no downward transition. This means those seeing their valuations decrease will see the benefit in their bills immediately, at the same time as increases are capped.

“However, it remains the case that the current system is outdated and not fit for purpose. The government made a manifesto commitment of root and branch review and it’s essential that this delivered as soon as possible.

“It was also encouraging that the chancellor confirmed that energy support will continue post-April for the most vulnerable sectors, of which hospitality has already been recognised… Businesses create jobs, deliver higher wages and contribute millions in tax revenues but without a serious plan from the government, margins continue to be squeezed without a path forward to growth.

“There is nothing to give firms confidence, let alone invest, and we need to see an urgent plan for economic growth and how business will be at the centre of that. UKHospitality stands ready to work with government to develop such a plan and on the essential package of energy support post-April.”