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The 2023 UK SME business survey from Portman

This year’s results are in

We sent our annual business survey to over 500,000 UK companies to find out how they are adapting in a post-covid, high inflation environment where rates are increasing.

How does your turnover compare to pre-covid times? 

A mixed set of results, representing the variation in performance across sectors. Overall, 36% of businesses say their turnover is now higher than in 2020, 33% say they are down, and 27% are reporting about the same turnover as 3 years ago.

Businesses where performance was typically worse than pre-covid times were in hospitality, education, mining, and utilities industries. Businesses trending-up favoured the administrative, construction, IT, manufacturing, and professional service sectors.

Agriculture, leisure and entertainment, health and beauty, real estate and retail showed a lot of variation but tended to be about the same as 2020 levels.

Even within each sector there was considerable variation in performance, suggesting that success and growth is not coming just from the sector itself, but the strategies of each individual business.

What do you predict your business will do in 2023?

In 7 sectors more than 50% of businesses expected to grow this year: Agriculture, Construction, IT, Manufacturing, Mining, Professional Services and Utilities firms all had a positive outlook.

In no sectors did the majority of businesses expect to shrink this year, but the leisure and entertainment and logistics sectors showed an even split between ‘stay the same’ and ‘shrink, suggesting these industries had the most negative outlook for 2023.

Which initiatives has your business undertaken in the last 12 months?

Only 17% of firms had not changed their business at all in the last 12 months, whereas a huge 83% of businesses have made a deliberate effort to adapt to the changing economy.

43% have changed their business model and 42% of businesses have invested in new technology in the last 12 months. 35% have grabbed a new opportunity and 33% have launched new products or services. It doesn’t take great maths to work out that some businesses are making multiple changes to their business in the search for success.

Of the businesses that had undertaken ‘other’ initiatives, responses were varied ranging from ‘made redundancies and cuts’ through to ‘expanded into new territories’. ‘Restructured to improve efficiency and looked at ways to improve sustainability’ was a response that typifies those businesses trying to adapt.

Looking at the actions taken by businesses in each sector, 25% of leisure and entertainment, 27% of health and beauty, 32% of services and 18% of retail businesses had not taken significant action in the last 12 months. This may partially explain the lack of performance against pre-covid times and the static outlook in these sectors for 2023.

Businesses with a positive outlook for 2023 tended to be those where a large proportion had invested in new technology (Manufacturing 57%, Construction 45%, Education & Training 57%, Logistics 45%).

What does your business plan to do this year?

96.1% of business owners are planning to take action and adapt to the changing economy this year. Only 3.9% of companies were not planning to make any changes.

As expected, cost-control is high on the agenda for the next 12 months, with 74.5% of businesses are looking to manage costs. Retention of staff was seen as the next critical issue, with 51% of SMEs planning initiatives to attract or retain the best staff. We then saw roughly even responses between businesses looking to improve productivity, identify new profit opportunities, and building the brand reputation.

When asked what they thought was important to invest in, 60% of businesses thought it was important to invest in improving their customer experience. 50% saw Marketing and Advertising as important, followed closely by new technology and new equipment. Interestingly, despite the need to manage costs, investing in sustainability was only important to 38% of businesses. Similarly, whilst 60% of businesses wanted to improve their customer experience, only 27% were looking to refurbish their premises.

What is the biggest challenge facing your business today?

The recruitment and retention of qualified staff was identified as the biggest challenge facing SMEs today. 25% of all businesses made comments such as: “Very limited pool to recruit from and staff are being poached with high salary offers”, “Lack of trained and competent operatives”, and “Finding and keeping good staff, managing mental health issues and hybrid working”, highlighting an array of issues around salary, available talent, training and managing the modern workplace.

This was followed closely by inflation, with 23% of businesses identifying a severe hit from the rising cost of materials, energy bills and wages.

In 3rd, UK Government policies, taxation, planning and local councils were highlighted as the biggest challenge by 17% of businesses. “Administrative and input cost rises due to short-sighted initiatives and legislation” and “Post-Brexit trade barriers and inhibitors” are perhaps the most representative comments on which is a very passionate topic for SMEs.

Growing the business and attracting new customers was the top challenge faced by 12% of firms, whilst access to suitable and cost-effective finance was identified by 10%.

The remaining 13% of businesses pointed to a range of specific issues around the economy, cashflow and staff productivity.

So what does this mean for your business?

Its all very well talking about what everyone else is doing and how they are feeling, but you know your business so how does any of this actually affect you? Well, we have some top tips:

  • Are you outperforming your industry sector? If so, try to understand why, explain it to your team and keep going. If not take a close look at the competition, what are they doing that you are not?
  • A business’ outlook for 2023 seems linked to the initiatives they were trying in order to grow. Don’t sit back and blame the economy, the government or inflation, these things are very difficult to change and change slowly. Find your path to success.
  • Explore your use of technology. Not only could new technology make you more efficient, save energy or bring new opportunities, but it seems linked to an expectation of business growth and could be unlocking potential for your competitors, so why not you?
  • With staff retention such a big issue, but wage price spiralling not helpful for businesses, look at what else you can do to create an environment that people want to work in. Can you be more flexible, can you offer different hours, can you take on more part-time employees, are there staff benefits you can offer that others are not willing to. You don’t have to resort to salary, explore other benefits.
  • Lack of skilled labour is also a problem for many, can you implement training contracts to attract employees and switch them to your business? Offering to retrain someone builds your employee pipeline and can be linked with a contract that keeps someone with you after they have completed their course.
  • There’s no denying that the economic outlook is challenging for many, with the media seemingly exacerbating a negative environment that causes consumers to reduce spending further. So take the time to build your brand, have a think about what your business stands for, why you and not your competitors, and do your customers actually know ‘why you’? Build trust, build values and get your voice heard, its time to compete.

And if you still have all your bases covered, give yourself a pat on the back, maybe join your local Chamber of Commerce or volunteer as a business mentor and share your expertise with other (non-competing of course) businesses.

If you do happen to need finance to build your business or secure your cashflow, talk to Portman. We can discuss fixed-rate agreements that give you budgeting certainty, asset finance for the best rates on new equipment, or flexi-loans that allow you to reduce the amount of interest you pay by settling early with no fees.