Bibby Financial Services

Profitability on a knife edge

2.1 million UK SMEs are just about breaking even

Derek Ryan UK Managing Director Bibby Financial Services

UK SMEs are ambitious for the opportunity to regain lost ground post-pandemic, but risk being held back by a myriad of mounting pressures including rising costs and cashflow challenges.

The results from our annual SME Confidence Tracker survey, reveal what many brokers already know, in that this difficult operating environment is causing friction and fragility amongst smaller businesses.

UK businesses face a heady cocktail of issues that threaten to impact growth forecasts for 2022 and beyond, including soaring inflation, skills shortages, and a cost-of-living crisis not seen on such a scale in the 21st century. While our report highlights a stoic resilience amongst the UK SME community, many are still struggling to keep their heads above water and operating on a day-to-day basis, rather than looking ahead to growth.

Facing an uncertain future

Our report warns that while UK SMEs have duly earned their resilient reputation, this optimism is set against a backdrop of continued uncertainty. The research shows that profitability is on a knife edge, with four in ten (38%) small businesses now describing themselves as ‘just about breaking even’, that’s equivalent to 2.1 million SMEs. Only half (52%) describe themselves as profitable and one in ten (9%) – equivalent to more than 500,000 UK SMEs – say they are operating at a loss. But it’s not all doom and gloom. Exploring the views of 500 UK SME owners and decision makers, our findings also revealed that 82% of SMEs now feel confident about their prospects this year, a six-percentage point increase compared to 2021, and over the past six months 56% of businesses have reported an increase in sales.

Keeping the cash flowing

Overall, more than a quarter of businesses (26%) highlighted cashflow as a concern. Almost one in five (17%) said they need cashflow support more now than before the pandemic and 9% said that they don’t even have the cashflow they need to operate on a day-to-day basis.

When cashflow is so critical to business survival, late or failed payments can be fatal to this new tribe of ‘just about breaking evens’. More than a quarter (28%) – equating to 1.5 million businesses – say they have suffered from bad debt in the previous 12 months, where sums have been written off owing to customer non-payment or protracted default. This is significantly higher than 2021 when 20% reported bad debt and the report finds that SMEs have written-off an average of £10,329 in the last year alone.

SMEs faced the pandemic with fortitude and now they must continue to adapt and change to carefully manage the rising costs of doing business. It’s evident that cashflow challenges and payment issues continue to plague businesses, and it’s now more important than ever that they have access to expert working capital to support day-to-day operations, and to repay debt taken on at the height of the pandemic. But they cannot do this alone. Bibby Financial Services is committed to working alongside the broker community to support SMEs in accessing working capital solutions that help them to thrive and grow.