Future of Business and Industry
Accounting & Finance
How the UK can maintain its leadership in financial innovation
Today, 80% of UK adults use fintech tools regularly, and nearly 60% of SME lending is done by fintechs, challenger banks and alternative lenders.
WRITTEN BY Janine Hirt CEO, Innovate Finance
Despite a challenging 2023, the UK continues to maintain its position as a global leader in fintech, with the sector securing over $5 billion in investment last year — second only to the US and ahead of all of the rest of Europe combined. To sustain this leadership, however, it is critical that we do not rest on our laurels.
Collaboration and innovation in UK fintech
Industry, regulators and government must work together to cement the UK as the best location in the world for fintechs to grow and as the most secure place for firms to harness emerging technology and use digital finance. Innovate Finance recently launched the Unicorn Council for UK FinTech (UCFT)™ to support the highest growth UK fintech companies. The Council has outlined a number of key policy recommendations for the Government. They will serve to strengthen the UK as a scaling destination of choice for fintechs and allow consumers to reap the benefits of innovation in financial services.
Priority goals for UK fintech leadership
Manifesto, which outlines three priority goals for the next government. They are all critical to deliver on if we are to maintain the UK’s leadership in financial innovation: build the world’s first smart data economy in the UK; make the UK the most secure place in the world for consumers and businesses to use digital finance; and make the UK the world leader in adopting new technology in finance.
Other countries are quickly gaining pace, and so, we must act now to support this thriving sector of our economy.
We also recently published our General Election Fintech
Supporting UK fintech growth
By committing to ambitious targets and learning from the growth experiences of the last 15 years, the UK is in a great position to build on its success as a world-leading fintech hub. Other countries are quickly gaining pace, and so, we must act now to support this thriving sector of our economy. The fintech sector stands to benefit not only our financial services industry but consumers and SMEs across the country that are able to take advantage of greater choice in financial services, greater access and better user experience at a lower cost.
Open banking unlocks real-time data for cloud accounting
WOpen banking has become a vital part of cloud accounting for the UK’s small businesses, helping them manage their finances more effectively.
e first reported on the effect that open banking data connections were having on the UK’s small businesses and their accountants in our 2022 Impact Report. This research highlighted the role that open banking has played in the adoption of cloud accounting, as well as helping many small firms to better manage their finances.
Open banking gives companies and sole traders the ability to connect their business bank account to cloud accounting packages, giving access to real-time transaction data and benefits to businesses and their professional advisers.
Improved forecasting and cash flow
Many small businesses find it hard to get an accurate picture of their current financial position. Consequently, it can be difficult to control fluctuations in cash flow, prepare for unexpected shortfalls and collaborate effectively with accountants, finance professionals and lenders.
Open banking integration with accounting software provides near real-time access to financial data, offering a comprehensive view of cash coming in and going out. This can highlight savings opportunities (so firms can move funds to interest-bearing accounts or make investments), as well as possible areas of concern, enabling advisers to offer actionable advice before problems escalate. This accurate snapshot also informs decision-making and provides access to affordable lending via faster eligibility checks.
Tackling late payments
Getting paid on time is a perennial problem for many small firms. As well as the shortfall in cash flow, firms may waste time chasing late payments. However, some accountancy packages enable firms to share a payment link with a client and receive account-to-account payments in near real-time. This helps to improve cash flow, saves time and effort on administration and supports the effective reconciliation of accounts. Real-time transaction data means that small business owners get the latest information on which invoices have been paid and not paid.
Making small businesses more efficient
Some packages offer bill payment features via open banking, allowing firms to pay multiple bills without leaving their accounts software, saving time on manual administration and helping reduce the risk of manual errors. The continued growth of cloud accounting is helping to drive the digital transformation of many small businesses and improving long-term efficiency and productivity. Open banking and cloud accounting are a powerful partnership. Our March 2024 Impact Report revealed that one in five of the UK’s small businesses are now actively using open banking, many as part of their accounts software, and we expect to see continued efficiencies and opportunities offered by this pairing.
WRITTEN BY Daniel Jenkinson
Senior Policy Manager, Open Banking Limited
Empowering UK plc: how the financial reporting council can deliver
Now is an opportune time for The Financial Reporting Council to deliver on its aims of bolstering market confidence and our international competitiveness.
I’ve spent a major part of my career working on financial regulation, but I can’t remember a time when its effect on economic growth has been so much in the headlines. Whether it’s the Financial Conduct Authority’s new approach to enforcement investigations or the Prudential Regulation Authority’s rules on bank capital, rarely has the ability of regulatory frameworks to boost or stifle growth been discussed.
Aiming for market confidence
We were pleased to see the Financial Reporting Council’s (FRC) Chief Executive, Richard Moriarty, recently highlighting the role he wants the agency to play in underpinning “market confidence and investment in the UK.” This follows on from the Government having reinvigorated the remit of the FRC to embed growth and competitiveness within its objectives.
With the new Corporate Governance Code due to come into force in 2025, it’s time to assess the burdens UK companies face and their competitiveness to ensure we’re not disadvantaging them globally.
Mr Moriarty says he hopes the FRC will come to be seen as “adding value to the public interest and supporting growth and competitiveness.” Turning these words into a framework that supports innovation and growth will need a major shift.
Closer collaboration
There are concrete reforms that the FRC could start implementing now to help deliver on its new aims. Working more closely with companies implementing the new rules, such as setting out what good might look like when it comes to directors’ disclosures on identifying material internal controls and addressing any weaknesses therein, would be a significant step forward.
Moreover, companies need to be given the confidence to come forward and engage with the FRC’s ‘comply or explain’ approach, particularly when adopting the ‘explain’ option.
Business leaders are currently, and understandably, reluctant to move first and risk revealing potential organisational weaknesses, particularly if UK companies are alone in taking this approach. A fresh signal of intent from the FRC could help to give board members the confidence to make the necessary explanations.
Boosting global competitiveness
It’s important that we don’t fixate on having a regulatory framework which aims to produce a zero-risk environment. In a fiercely competitive global marketplace, it’s crucial to make the UK an attractive place for businesses to grow and invest, deterring potential investors from seeking opportunities elsewhere.
Benefits of switching to online financial management solutions
Switching to online financial management solutions can offer major efficiency and productivity benefits for small businesses as well as bringing new clarity to payments.
Predictable cash flow is a significant aspiration for small firms in a world where late and failed payments create major accounting issues. With UK small and medium enterprises (SMEs) said to be owed £26.3 billion in overdue payments — and cash flow responsible for up to 90% of business failures, according to the Office of National Statistics — the scale of the problem is obvious. Changing how firms collect payments can ease some of the pain, and integrating the process with existing accountancy tools offers clear benefits.
Financial management that transforms cash flow control
Speaking to delegates at the recent Xerocon accounting conference, Pat Phelan explained how changing the way payments are collected can put “business in control of cash flow, rather than customers.” Measures include automating payment collection via direct debit to deliver healthier cash flow, predictable revenue and growth scalability.
Phelan is Chief Customer Officer and Managing Director of UK and Ireland at global bank payment provider GoCardless, which believes direct bank payments are the most straightforward way for small firms to get paid. A critical step for small firms lies in moving to “one of the new breeds of clouding accounting platforms.”
Why switch to online financial management?
Companies using Excel, paper files
or traditional desktop accounting software waste time, hinder productivity and lack system integration. Switching to an online financial management solution improves efficiency and productivity.
It also offers access to round-theclock accounting in an integrated system built on business apps and fintech tools. Significantly, it delivers better collaboration with accountants and advisors. “Cloud accounting is rapidly gaining a foothold as the solution of choice for businesses that want an improved level of control over their finances,” he says.
Cloud accounting boosts integration
Cloud Industry Forum research shows that 38% of UK businesses are using cloud-based accounting solutions, with that figure increasing to 46% for the SME market. The GoCardless direct debit solution integrates with all major cloud accounting platforms, with pre-authorisation of amounts and automation of recurring invoices and cash collection.
Accountancy firm Blu Sky was an early adopter of cloud accounting technology. On switching to the direct debit solution and seamless integration with Xero, a reconciliation process that previously took two days a month is now done daily. Meanwhile, Maslins Chartered Tax Advisers estimate it saves a day of payments admin each month, with the risk of human error massively reduced.
Customer-centric solution
Phelan says their direct debit solution means no more late payments; reduced receivables; offers a cash flow boost; facilitates easier payments;
Integrations
between software and payments can save businesses time and money.
better visibility; and seamless integrations and communication. “We also respond to failures in the right way,” says Phelan. “When something does go wrong, we have a process that recovers well, with a retry in a customer-centric way.”
Their Success+ system uses payment intelligence and machine learning to identify when each payer is most likely to have funds in their accounts and automatically retries failed payments on those days. About 70% of firms using Success+ credited it with improving their relationships with customers, removing the need to chase for unpaid funds.
Streamline payments, enhance client interaction
Having accounting software and payment tools that are available online 24/7 is great, but there is a further step firms can take to drive greater efficiency. Integrations between software and payments can save businesses time and money, manage payments in one place and provide better visibility over payments by choosing providers that work together.
“Having your invoices paid automatically by direct debit is a real time-saver, but one additional benefit of connecting GoCardless to your cloud accounting is automatic reconciliation,” he adds. When assessing which systems or providers to use, looking at their integration offering is a vital step. Managing payments entirely in one place, one dashboard and one report will save infinite time and costs later down the line.
Image provided by GoCardless
INSIGHTS FROM Pat Phelan Chief Customer Officer and Managing Director, UK & Ireland, GoCardless
WRITTEN BY
Mark Nicholls
How tax technology will help accountants prepare clients for digital tax rules
If they haven’t done so already, accountants need to start preparing their clients — and themselves — for the digital tax changes that will be coming into force very soon.
The Government’s Making Tax Digital rules have developed something of a ‘boy who cried wolf’ reputation. They have long been talked about but never fully appear. Yet, accountants and bookkeepers should be under no illusions, warns Stuart Miller, Director of Product Compliance and Industry Engagement at global small business platform, Xero.
Businesses must prepare to comply with digital tax rules
Digital tax rules ARE coming — and, when they arrive, old paper accounts will be consigned to the bin. “If HMRC continues on its current trajectory, Making Tax Digital will come into force in April 2026 and apply to all propertyletting and self-employed with gross income above £50k,” he says.
“From April 2027, it will then apply to all property-letting and self-employed gross income above £30k. It’s a big change because it means that landlords and small businesses will be required to keep digital records and file quarterly reports.”
Set up the digital groundwork with accountancy software
Miller advises accountancy practices: if you haven’t done so already, you should start preparing the digital groundwork for your clients now. “Do your segmentation work, look at your client portfolios and find out who among them is digitally capable and who is not,” he says.
“If some of your clients are still giving you a shoebox full of receipts, you have around 12 to 18 months to help them find the right accountancy software and ensure they have the right digital record-keeping processes in place.”
Reaping the rewards by switching to digital
Some accountants and bookkeepers might view these changes as an unnecessary hassle. That would be a mistake, insists Miller because those who have already adopted digital tools are now reaping the rewards. “They’re ahead of the game because real-time digital data allows them to provide real-time tax advice and advisory services to clients,” he says. This greater level of insight makes them better equipped to serve small businesses and help them grow.
AI assistance enhances accountants’ efficiency
won’t work without a sound digital foundation,” notes Miller. He does, however, stress that digital technology will never replace solid technical background and accounting knowledge. “Think of technology as your assistant,” says Miller. “It’s not going to do your advisory work for you, but it is going to streamline processes. However, it will require accountants to learn new skills, so they can keep up with the change — otherwise, they could get left behind by challenger firms.”
AI tools in software can now automate data entry, process eInvoices, pre-populate tax returns and send automatic payment reminders.
There’s another reason why switching to digital is important. Advanced technology is transforming the way accountants work. For example, AI tools in software can now automate data entry, process eInvoices, pre-populate tax returns and send automatic payment reminders, giving accountants more time to deliver better client support. That’s a game-changer. “But even the best AI tools in the world
Choosing the AI technology that is best for you When it comes to using AI technology within your accountancy business, don’t rush into it. “Steady adoption is always best,” says Miller. “Test the tools, find your flavour and see what works for you — what’s good for one accountancy practice may not be good for another.
“Also, be prepared to fail and think: ‘Actually, this tool doesn’t work for us,’ but don’t shy away from AI either. A particular tool may bring fantastic efficiencies and savings, or it won’t, and you may need to try something else.”
He adds: “There might be tools you can explore that are connected to the technology you’re already using. For example, Xero’s AI-powered business companion, ‘Just Ask Xero’ (JAX) will allow accountants to complete simple accounting tasks by messaging JAX either in Xero or via tools like WhatsApp and email.”
INTERVIEW WITH Stuart Miller Director of Product Compliance and Industry Engagement, Xero
WRITTEN BY Tony Greenway
Small and medium-sized enterprises (SMEs) are the backbone of the UK economy. In 2023, they accounted for 61% of all UK jobs, with the vast majority of companies employing fewer than 250 people. Within this group is huge diversity in size and type of business, and their digital capabilities. However, all too often they are treated as one homogenous group resulting in tech companies and the government often overlooking the specific needs of the smallest businesses.
Cash flow and SME productivity
Cash flow problems, invoicing issues and the resulting hit on productivity are major issues for small firms, many of whom are spending so much time chasing late payments and manually creating invoices that they’re left with little time to grow, innovate and thrive.
“Whenever we talk to small businesses, they tell us their most precious commodity is time and that the biggest challenge they face is managing their cash flow,” says Alex von Schirmeister, UK and Emerging Markets managing director for global small business platform Xero.
“Our data shows that small businesses in the UK are actually less productive now than they were before the pandemic — and we’ve been talking about productivity concerns for much longer than that.”
Digital tools boost efficiency and revenue
Digital tools can mitigate challenges by automating routine
Overcoming cash flow and invoicing challenges to boost small business productivity
Small businesses are the backbone of the UK economy but are lagging significantly in terms of digitalisation and, as a result, productivity.
tasks, improving communication and enhancing customer engagement. For instance, customer relationship management (CRM) systems can streamline sales processes and improve customer interactions while accounting software can automate financial tracking and reporting, saving time and reducing errors.
The productivity gains from digitalisation can be substantial: automation of repetitive tasks frees up time for employees to focus on more strategic activities. In fact, the UK’s smallest companies (those with nine or less employees) could generate up to £77.3 billion in additional revenue and create 885,000 new jobs if they all digitalised at the rate of the top 20% tech adopters, according to a 2023 study by Xero and consultancy Cebr.
Collective benefits from small business growth
“That would be a massive leg up — and not just for these companies individually,” says Schirmeister. “Small businesses represent a huge proportion of jobs and overall turnover. Even the smallest bump in incremental productivity and growth will have an immediate ripple effect on the national economy.”
Xero’s research found that SMEs that had digitalised the most over the last four years had grown their revenue by 8.1% over the same period compared to the slowest adopters, whose revenues declined by 4.7%.
Digital education and networking
It’s important to remember that small businesses differ in size, industry and their ability to adopt new
technologies. Some may lack digital literacy, face financial constraints or operate in less digitalised industries.
“Companies don’t always know where to turn to and don’t always get support from wider networks or the Government in terms of education,” says Schirmeister. “It’s likely that someone else has faced the same challenge and discovered the right tool, so it’s important that small firms network and learn from each other. The Government can also do a lot more to level up education and offer more tailored support to help speed up digitalisation among the smallest businesses.”
Government support for SME digitalisation
The UK Government should also prioritise tackling late payments to small businesses, which Xero refers to as ‘unapproved debt’. “It’s almost like these companies have taken an unapproved risk-free loan,” says Schirmeister. “It’s positive to see late payments pledges in many of the manifestos, but we need to see more firm action from government to hold these companies, particularly if they’re PLCs, to account in the same way they do on equal pay.”
Adopting digital tools, like automating invoice reminders, boosts productivity and contributes significantly to economic growth. Policymakers and industry leaders must support these efforts by making digital education accessible and offering financial assistance and resources. This will enable businesses, regardless of their starting point, to benefit from digitalisation.
INTERVIEW WITH Alex von Schirmeister
Managing Director, UK & Emerging Markets, Xero
WRITTEN BY Elizabeth Meager
Empowering
Entrepreneurs & SMEs
Pages 07 - 12
How modern entrepreneurs can secure financial support and top talent
Modern entrepreneurs must navigate funding, talent acquisition and sustainability while leveraging mentors and incentives to thrive in today’s competitive landscape.
WRITTEN BY Dr Roger Barker Director of Policy, Institute of Directors
Traditional concerns for entrepreneurs and SMEs, such as access to funding and the ability to recruit and incentivise talent, are just as relevant to today’s startups as they were when Steve Jobs, Apple’s co-founder, sought to conquer consumer electronics from his parents’ garage.
Fortunately, entrepreneurs can now access an ecosystem of angel investors, venture capital houses and government agencies that work tirelessly to find and nurture the next blockbuster tech, pharma or financial business.
particularly the case when it comes to younger employees (Gen Z and millennials).
A March 2023 survey by Deloitte showed that 69% of employed adults want their companies to invest in sustainability efforts, including reducing carbon, using renewable energy and reducing waste. This sentiment was higher among younger employees between 18 and 34 years old.
To stay ahead, businesses will have to offer the brightest and best staff a range of incentives.
Entrepreneur mentorship and growth incentives
There are many things founders must consider when growing a small business. It may be useful for them to lean on a mentor or a business network, such as the Institute of Directors, to advise and coach them through the next growth phase.
To stay ahead, businesses will have to offer the brightest and best staff a range of incentives. This may include stock options, opportunities for professional development and advancement, plus an attractive and flexible work environment.
Younger workers value sustainability Increasingly, workers are also interested in the sustainability of the companies they work for, as well as their broader social impact. This is
Social impact of business
Another Deloitte report notes that for ‘valuesdriven’ generations like Gen Z and millennials, the ability to drive change on social issues has the potential to make or break recruitment and retention efforts.
Nearly 4 in 10 (44% of Gen Zs and 37% of millennials) say they have rejected assignments due to ethical concerns while 39% and 34%, respectively, have turned down employers that do not align with their values. Gen Zs and millennials have high expectations for businesses around social impact, which are not always met. Less than half of Gen Z (48%) and millennial (44%) respondents believe business has a positive impact on society.
Today’s entrepreneurs have more help than ever at their disposal, but there are also more obstacles in their way. How they navigate that tricky path will determine whether they become the next big thing.
Reducing costs and improving efficiency with automated bank payments
Small businesses can streamline their payment collection through solutions that offer a direct approach to collecting their income from customers, reducing late and failed payments.
When running a small business, it can often seem as though painful processes, like spending countless hours chasing unpaid invoices are just part of the package. This doesn’t have to be the case.
Misaligned payment collection hinders business
There are many well-known and common ways to collect payments, but I’ve repeatedly seen businesses choose ones that don’t align with their business model or customer’s preferences.
This poor fit is one of the biggest contributors to payment headaches, leaving businesses needing to invest time and resources that could be better used elsewhere. While it can be awkward to discuss money matters,
73% of small business owners believe that failing to openly talk about money is holding their business back.
Costly inefficiencies in payment collection
There are a lot of different factors to consider when deciding how to collect payments. Manual bank transfers, cheques and one-off card payments are all forms of push payments that rely on the payer to ‘push’ the funds to you — giving them control of when and how much to pay.
If you have a subscription-based business or manage repeat orders, these methods make it hard to predict cash flow and limit how far into the future you can plan. Card payments are particularly problematic because even when automated or set up for recurring payments, they have expiry dates and a propensity for getting lost in the back of taxis, which can result in
some payers involuntarily churning. There’s a big connection between payment methods and churn, with average annual churn rates being at 16% for PayPal, 14% for credit cards and just 4% for Direct Debit.*
In 2022, some 52% of small businesses experienced late payments while sole traders and SMEs can spend 19–31% of their weekly work time dealing with payment admin due to inefficient ways to collect and manage their money. All of these ‘hidden costs’ quickly add up, and trying to salvage a failed payment can end up costing between 11–15% of the value of the recovered funds.
Automated bank payments for businesses
While all payment methods have associated costs, if you’re collecting recurring payments, then automated bank payments offer a competitive total cost of ownership. Take Direct Debit as a primary example. It cuts out manual processes for both you and your customers as it only requires one-time approval; bank accounts don’t expire or get lost; and they’re accessible to your customer base. It is also a ‘pull payment,’ which means your business is pulling the money from your customers’ accounts. This gives you greater control over payment predictability and the added peace of mind knowing exactly when and how much money will be coming in each month. They also have the flexibility to amend the amount or frequency of collections, meaning you don’t need to worry about delays in getting paid if you make changes to your pricing or products offered.
Streamlining payments collection
You might wonder how changing the way you collect payments will impact your customers, but a recent GoCardless and YouGov payer preference survey found that 45% of payers will abandon a purchase if required to manually enter details. A further 69% will abandon it if the checkout process feels too complex. Switching to Direct Debit could help you win new customers as it’s well-known and trusted, and it has the benefit that customers can ‘set and forget.’ These details in the checkout process can all add up to give you a competitive edge.
Robust payment strategy
Your payments are the lifeblood of your business. While it can feel like a daunting task, evaluating how you collect payments and taking the time to compare the different methods will help you to save more time and money now so that you can hopefully grow in the future.
Small Business, Green Growth
Amid the urgency of the climate crisis, small businesses are stepping up for sustainability, driving positive momentum and navigating the challenges and opportunities.
Recent findings from the ‘Small Business, Green Growth’ report from Small Business Britain and BT highlighted both the opportunities and challenges that small businesses face in this journey towards sustainability.
Sustainability opportunity with financial hurdles
The report displays eagerness among small business owners to leverage sustainability as a growth opportunity. Indeed, one in four businesses recognises the potential for sustainable practices to benefit the environment and their bottom line. However, amid this enthusiasm lies a significant hurdle: financial constraints. It’s understandable that small businesses, often operating on tight budgets, find it challenging to invest in sustainability initiatives.
Despite recognising the importance of sustainability, many cite limited access to finance as a primary barrier. This underscores the need for supportive mechanisms, such as grants and financial aid, to enable small businesses to embrace sustainability without fear of financial strain.
to ensure that small businesses can effectively navigate the path towards sustainability.
In light of these challenges, leadership is crucial. Small businesses seek support from governmental bodies and organisations like Small Business Britain. Both public and private sectors must offer the necessary resources and expertise to empower small businesses on their sustainability journey.
Education and alignment for sustainability
Education and awareness are also pivotal. Demystifying sustainability benefits and highlighting the long-term gains can help dispel misconceptions and encourage more small businesses to take the leap. Furthermore, governmental strategies should be re-evaluated to better align with the needs of small businesses, ensuring that support is accessible and relevant.
Both public and private sectors must offer the necessary resources and expertise to empower small businesses.
Government support and leadership required
Moreover, there’s a palpable gap between governmental initiatives and small business engagement. While the Government has made commitments towards achieving net zero emissions, there’s a disconnect in how these initiatives trickle down to small businesses. More direct and impactful support is needed, coupled with clearer communication,
Collaboration for sustainable small businesses
As we look ahead, collaboration will be key. With backing from both the public and private sectors, we can create a conducive environment where small businesses thrive sustainably. We can contribute not only to a greener future but also to a more resilient and prosperous economy for all. Turning aspirations into action can empower small businesses to lead the charge towards a sustainable future.
How we can turn the UK’s tech startups into global champions
In a competitive global market, the UK must develop a growth strategy that leverages its strengths in AI, biotech, green technologies and fintech, with robust support for SMEs being crucial.
Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, representing over 99% of all businesses and providing about 60% of private sector employment.
Foster thriving UK tech SMEs SMEs drive competition, stimulate innovation and create jobs — all of which are essential for economic growth. To capitalise on the forthcoming technological revolution, it is vital to foster an environment where these enterprises can thrive.
Building the next trillion-dollar tech company is another ambitious yet achievable goal. The UK has demonstrated its capacity to nurture unicorns, but the focus now should be on ensuring these companies grow further and remain in the UK. This involves not only maintaining a competitive environment for startups but also developing proactive support mechanisms for scaling companies.
Supporting UK tech scale-ups
have doubled the number of people it employs over the past five years and could employ as many as 20,000 people in the near future.
Supporting scale-ups is seen as a key economic growth opportunity for the UK and the route to developing future globally leading companies in science and technology. In response, the UK Government is seeking to create an environment to better support the UK’s most promising and fastestgrowing firms.
Collective efforts for investment
As such, techUK is working with its scale-up members to help inform and shape how the Government approaches new regulation and policy so that we can unlock barriers to growth and build an economy that continues to lead on business productivity, investment and innovation.
Supporting scale-ups is seen as a key economic growth opportunity for the UK.
Cracking Britain’s scale-up challenge is now more important than ever. A difficult year in venture capital markets has meant that onceavailable capital is more restricted. Government efforts to open new investment options from pension funds and institutional investors are the right policies, but it will take time.
Scale-ups have enormous potential; an analysis of the 100 scale-ups within techUK’s own membership shows a potential growth rate of 36.5%. Moreover, its group of tech scale-ups
Our scale-up group will be a focal point for techUK’s engagement with the Government, opposition, government agencies such as the British Business Bank and National Infrastructure Bank, as well as private investors to provide an enhanced level of support to some of our fastest-growing companies.
WRITTEN BY Ed Bevan Head of SME Engagement, techUK
WRITTEN BY Michelle Ovens Founder, Small Business Britain
How hassle-free flexible borrowing and cash flow solutions support SMEs
Small businesses continue to face economic challenges. However, their resilience should not be underestimated — and support is available to help them manage cash flow.
Recent years have been financially tough on everyone — that includes small and mediumsized enterprises (SMEs). World events, political uncertainty, rising inflation and supply chain issues have made a disruptive economic environment even more challenging for SMEs.
Borrowing costs and cash flow concerns
The latest Impact Report from the UK’s leading small business lending platform
Funding Circle found that small businesses were still navigating choppy waters in 2023. Although inflation fell to 4% in December (from a high of 11.1% in 2022), the UK slipped into a technical recession in the fourth quarter of 2023, and the Bank Rate increased, pushing up borrowing costs.
Increased resilience fuelling ambitions for growth
That said, Fernandez is optimistic that UK small businesses can ride out the financial storm. “Although SMEs have faced challenges over the last few years, they have a resilient mindset and will continue to adapt and thrive,” he says. Indeed, the Impact Report highlighted that SMEs are showing increased resilience and signs of optimism when looking at medium-term growth ambitions. “Over three quarters felt that the economic challenges they faced during the year increased the resilience of their business,” says Fernandez. “When asked if they had plans to grow, the percentage of SMEs that said ‘yes’ was almost half.”
When asked if they had plans to grow, the percentage of SMEs that said ‘yes’ was almost half.
“Cash flow is an ongoing problem for SMEs,” says Jerome Fernandez, Managing Director of FlexiPay at Funding Circle. “About 14% of them identified it as a major barrier in the third quarter of 2023, up from 11% at the start of the year.”
This turbulent environment calmed slightly this 2024, but the latest SME Finance Monitor highlights ongoing challenges, including rising costs, economic conditions, late payments and finance access.
Redefine recruitment by honing in on inclusive, bias-free hiring
Flexibility to manage cash flow challenges
Despite positive feedback, Fernandez admits there is a way to go until SMEs are firmly back on their feet. “For the rest of 2024, we think cash flow will remain a challenge,” he says. “But with access to a flexible line of credit through FlexiPay, business owners can pay for business costs upfront and spread their repayments over 3, 6, 9 or 12 months, helping them to better manage their cash flow.
“We’re always speaking to small businesses across the UK who typically face greater difficulty in accessing finance through traditional channels — to find out what their pain points are and how we can help them with the funding they need to succeed.”
different career trajectory. Day One is committed to being the catalyst for such opportunities for emerging talent, ensuring that individuals are evaluated based on their abilities and offered equal access to opportunities, regardless of background or traditional qualifications.
Empowering fair and inclusive recruitment
hiring to match the needs of emerging talent.
In today’s fiercely competitive job market, SMEs face significant challenges in attracting and retaining top-tier talent.
Merit-based hiring process
The traditional hiring process, often reliant on CVs and word matching to job descriptions, not only fails to accurately assess candidates’ skills but also perpetuates inherent bias in the recruitment process. It’s time to revolutionise this approach and shift the focus to skills and personal attributes, opening access to opportunities for all based on merit.
Embracing skills over CVs
The reliance on CVs and rigid job descriptions often leads to the
oversight of exceptional candidates whose skills and potential may not neatly align with traditional criteria. Businesses can break free from this limitation by embracing a skills-based hiring approach, which focuses on the tangible abilities and strengths of candidates rather than their educational background or conventional career paths. By doing so, businesses can identify and attract diverse talent with unique skills and perspectives, enriching their teams and driving innovation.
Creating opportunities based on merit
We all have experienced pivotal moments in our careers where someone recognised our potential or where we have had access to a
Day One’s innovative platform empowers businesses to hire better and fairer by matching emerging talent with opportunities through skills verification, removing bias from the hiring process. The verification process integrates strengths-based (through Strengthscope) and technical competency assessments, along with AI interviewing tools. This provides a comprehensive view of a candidate’s potential without revealing personal identifiers such as gender, ethnicity, age or social background.
By embracing a skills-focused approach, SMEs can effectively identify and attract talent that aligns with their unique culture and requirements, leading to better hiring outcomes and a more diverse workforce.
Join the recruitment movement
It’s time to embrace a hiring process that values skills, personal attributes and the potential of candidates. Join us in reimagining recruitment and creating opportunities based on merit.
One in four people will leave their jobs in the next 12 months, leaving SMEs with growth challenges. Revolutionise
WRITTEN
Greenway
Supporting SMEs can help fulfil UK demand for workforce skills
Businesses across the UK report that they cannot find workers with the skills they seek. People can fill these skills gaps with further training, and public policy can help.
Policymakers have tried to put employers ‘at the heart’ of vocational education and training. It is critical that the voice of SMEs is heard as they make up 99% of private businesses and hire around threefifths of the UK workforce. Yet, skills gaps for SMEs remain a significant and under-appreciated problem.
Skills shortage as SME growth barrier
Around 22% of small firms report a lack of skilled staff as a stumbling block for growth. One reason is that SMEs struggle to offer apprenticeships. SME apprenticeship uptake dropped from 241,000 to 123,800 between 2016 and 2021. SMEs have a good history of hiring young apprentices, so this has been a negative for young people.
In the SME-heavy automotive sector, currently, vacancies are around 22,000. The challenge for automotive employers is further exacerbated by the rapid acceleration of technology, which puts the sector in direct competition with many other industries, adding pressure to already tight SME budgets.
Better supporting vocational training
The Skills Commission and Policy Connect recently launched the Skills 2030 report. We found that SMEs need further support with vocational training. The Commission welcomed the Government’s recent plan to cover the training costs of SME apprentices aged 21 and under. However, we need to go further.
Why diversity extending to supply chains is essential for
businesses
Employers are central to addressing inequalities in the workplace and across supply chains so that everyone, regardless of their background, feels included, valued and respected.
WRITTEN BY Sandra Kerr CBE
Race Director, Business in the Community
One in five working-age adults in the UK come from Black, Asian, mixed race or other ethnically diverse backgrounds.1 Employers should work to ensure this is reflected across the UK workforce. By failing to do so, employers could be missing out on key talent. However, the work shouldn’t stop at their own workforces; employers should work with businesses in their supply chains to ensure diversity across their wider stakeholders. There is more work needed in this area as only a third of employers currently talk to their suppliers about their diversity and inclusion strategies.2
Promote diversity across supply chains
Business in the Community’s Race at Work Charter, a public pledge signed by over 1,000 employers to address workplace race inequalities, asks
Firstly, a new independent public body with SME representation at the top should oversee skills issues. SMEs must be fully represented in policy decision-making for vocational training.
Fully funding SME apprenticeships
Secondly, the Government should fully fund and incentivise more apprenticeships for SMEs of all sizes. It should fully fund intermediate and advanced apprenticeships (levels 2 and 3) at SMEs, regardless of the apprentice’s age. SMEs should also be given more funds to invest in each apprenticeship, driving improvements in the quality of the apprenticeship. These measures should increase the number of apprentices SMEs can take on while promoting quality.
Reforming the skills system for SMEs
SMEs have a vital role to play in vocational training and tackling skills gaps. If we want a highly skilled workforce for the country, we must give SMEs the support they need to take on more apprentices and deliver more training. We hope policymakers heed the call to arms in Skills 2030 to reform the skills system to do just that.
businesses to commit to including ethnically diverse-led SMEs in supply chains. SMEs make up 99.9% of the UK business population,3 yet only 1 in 10 UK SMEs are led by ethnically diverse individuals.4
Evidence shows that only a quarter of UK businesses have targets to diversify their supply chain, and only a third have a senior leader responsible for ensuring diversity and inclusion across supply chains.5
How to diversify supply chains
There are many actions businesses can take to diversify supply chains, including setting supplier diversity targets, setting KPIs, tracking progress and monitoring and publishing procurement data to ensure accountability.6 In doing so, employees, businesses and the local economy could benefit.
Benefits of supplier diversity
A quarter of ethnically diverse employees see their ethnicity as a barrier to the next step in their career,7 so it is essential for people to see leaders from the same ethnic background in senior roles. For a third of ethnically diverse employees, having role models from the same background is essential.8 Having ethnically diverse-led SMEs in supply chains can provide these role models, who can act as mentors to ethnically diverse employees, helping them to reach their full potential.
Supplier diversity can also bring many benefits to business. Research shows that it can lead to an increase in employee engagement, profitability and workplace productivity.9 By including local, ethnically diverseled businesses in their supply chains, businesses can support more SMEs and invest more in their local communities.10
References
1. Census 2021 data
2. Business in the Community: Race at Work Charter Survey Report 2023
3. Department for Business and Trade: Business population estimates for the UK and regions 2023: statistical release
4. Department for Business and Trade: Longitudinal Small Business Survey 2022: SME employers – data
5. Business in the Community: Race at Work Charter Survey Report 2023
6. Business in the Community: Ethnically Diverse-Led Owners in Supply Chains toolkit
7. Business in the Community: Regional Insights on Race
8. Business in the Community: Race at Work 2021: The Scorecard Report
9. What Is Supplier Diversity and Why Your Business Needs It [2023] | Supplier Diversity Solutions (viva-it.com)
10. Business in the Community: Driving Sustainability Through Procurement
WRITTEN BY Dr Peter Wilson Senior Researcher, Policy Connect
WRITTEN BY Hayley Pells Policy and Public Affairs Lead, The Motor Industry (IMI)