It’s a tough time to run an SME. Amid the cost of living crisis and skills shortages, many SMEs are feeling the pinch. There’s also mounting pressure on SMEs to champion social causes and meet ESG requirements.
But with each challenge comes opportunity. Equipped with the right support, skills and knowledge, SMEs can navigate these major trends with confidence and keep their business on steady ground.
Here are four key trends that many SMEs are currently grappling with and some tips on how you can help them respond.
1. Adopting tech solutions
Eight in 10 SMEs in the UK say technology is key to starting, developing and building their business, finds research by Sage.
But despite every good intention, SMEs often run into hurdles. Barriers to technological enablement include having limited knowledge, low confidence in using technology, the cost of investing in digital tools and insufficient time to roll out new technologies.
To better understand how SMEs can overcome these challenges, the government’s Business Basics programme rolled out the Evolve Digital trial, with the aim of ultimately boosting the adoption of digital tools among SMEs.
The trial, which rolled out to small family-owned businesses with relatively low levels of digital tool adoption, provided online cohort-based learning sessions, a suite of digital resources and access to social media groups that encouraged discussion about technology adoption.
SMEs that participated in the trial expressed greater confidence in using new technologies, and reported that digital tools were more useful and relevant to their business after the trial than before.
The results highlight that simply providing new technology isn’t enough; it needs to be accompanied by education and training to help SMEs realise the full benefits of technology.
The lesson for accounting firms looking to upskill their client base for better record-keeping and bookkeeping practices that will streamline accounting work: Training and support must be part of any effort.
2. Grappling with the skills shortage
SMEs are struggling to keep pace amid the current labour shortage. Finding the right people with the necessary skills to help a company grow has become a major source of stress for SMEs, with 68% reporting skills shortages in the latest British Chambers of Commerce and Open University Business Barometer.
This is having significant flow-on effects to business, with 72% of respondents reporting increased workload on other staff, 46% reporting reduced activity or output and 39% reporting reduced service delivery or operating times. More than a third say that worker shortages are restricting their long-term growth plans, and another third say they are driving profitability down.
Investments in training rolled out by the government, such as the Apprenticeship Levy – an amount paid at a rate of 0.5% of an employer’s annual payroll – can help businesses plug gaps in their workforce. It can also help SMEs nurture talent and build employees’ skills with government-backed funding.
The Business Barometer found that organisations with 10-49 employees expected to hire 38% more apprentices by June 2023, while those with 50-249 employees expected to hire 40% more.
3. Keeping a handle on cost of living
Over a quarter of businesses in the UK report that late payments from customers have become more frequent as the cost of living crisis starts to impact SMEs, according to YouGov research commissioned by Barclays.
On top of this, operational cost pressures, rising inflation and discussions of impending recession are placing financial pressure on SMEs.
The UK government’s new R&D scheme, announced in the Spring Budget, has the potential to help SMEs rise to these challenges.
Targeted specifically at R&D-intensive SMEs, the initiative aims to provide support to 20,000 eligible companies in the UK.
Under the scheme, companies can claim £27 from HMRC for every £100 of R&D investment. There will also be a strong focus on SMEs in the pharmaceutical and life sciences industry, computer programming and related sectors, and manufacturing.
Accountants can also help SMEs manage their surging costs by providing a spending overview of expenses across the business and supporting the business owner in directing their investments towards profitable revenue streams.
4. Taking ESG action
Increasingly, SMEs are expected to take a stand on ESG issues. This goes beyond companies expressing their support for a social cause. To demonstrate genuine commitment, they need to ‘walk the talk’ by taking measures that reduce their carbon footprint; partnering with suppliers that meet consumers’ expectations around sustainability, diversity and inclusion, and a range of measures; or directing a portion of their earnings towards a charitable cause.
According to the Climate Change Survey 2022, more than 50% of SMEs in the UK are interested in starting to apply ESG initiatives. Close to half (48%) of respondents, however, don’t have sufficient information on how to take action.
Accountants are well-positioned to help equip SMEs with data and insights that can direct their sustainability actions to those with the greatest impact, and measure the impact of their actions in real-time. Activities might include:
- Offer sustainability reporting to help SMEs measure their carbon impact, evaluate performance, and make necessary changes.
- Measure the potential loss of revenue that could result if a customer decides to take their business to a more environmentally conscious company.
- Help SMEs comply with existing regulations pertaining to ESG and prepare for upcoming legislative changes.
Introducing these types of strategies can help SMEs reap financial benefits. Stakeholders including shareholders, employees, suppliers and consumers are more likely to engage with an SME that’s contributing to a more ethical, just and sustainable world. And that’s going to be better for business, too.
Equip yourself to be a more effective and efficient finance partner for SMEs – register for the IFA Strategic Planning and Business Partnering webinar series.
