The last quarter of 2023 saw the UK going formally into recession, and that’s bound to affect the mood among small businesses. It’s not a coincidence that a survey by the Federation of Small Businesses (FSB) found that businesses felt more pessimistic during Q4 than Q3.
Lower Levels of Optimism Among Small Businesses
The FSB’s Small Business Index for the final quarter of 2023 found a reduction in small businesses expecting growth during 2024, dropping from 49.6% in Q3 to 48.2% in Q4. At the same time, the proportion of firms expecting contraction increased from 12.7% to 15%.
As usual with overall figures, the numbers varied considerably between sectors. The worst affected was the hospitality sector, where the percentage of firms expecting to shrink was higher than those expecting growth, while 12.6% anticipated having to close.
By contrast, sectors such as information and communication, manufacturing, and professional, scientific and technical were far more upbeat. Numbers expecting to grow ranged from 52.5% to 56%, while percentages looking at contraction were in single figures.
What Are the Problems Facing Small Businesses?
The FSB identified two major issues fuelling this pessimism among small businesses — late payments and difficulties in accessing finance.
There was a substantial increase between the two quarters in both the number of small businesses experiencing late payments and those reporting the problems growing worse. According to Martin McTague, FSB’s National Chair, “Late payment is a scourge, and one that shouldn’t exist — there’s no excuse, with modern business banking methods, for large companies to hold onto money due to small suppliers.”
Problems with accessing finance include higher interest rates, the introduction of personal guarantees for small loans, and the Bank of England’s plans to abolish the SME Supporting Factor, which is likely to discourage banks from offering finance. As it is, even those SMEs who were successful in getting finance had to pay heavily, with a record 33.4% offered rates of over 11%.
How Might This Affect You?
There is one hopeful sign. As Martin McTague points out, “We were relieved to see Government funding for the Recovery Loan Scheme, now renamed the Growth Guarantee Scheme, extended in the recent Budget. This will support the expansion plans of thousands of small firms.”
Nevertheless, the situation has the potential to hold back your business, both directly and indirectly. It may be difficult to access finance in order to expand, or to afford it, even if you’re successful. In addition, any issues your customers may be having could affect their ability to pay your invoices on time, impacting your cashflow.
The best solution for both cases is to ensure the money you’re owed flows in promptly. This means having the ability to pursue the “won’t pay” debtors and work with the “can’t pay” ones to make sure you get paid as quickly and fully as possible.
That’s going to require expert help. Give me a call if you need help ensuring you get paid what you’re owed as promptly as possible.