Smaller firms eye financial growth despite slump in optimism about economy

Small and medium-sized businesses remain upbeat on their growth prospects despite a sharp drop in optimism about the economy, a new survey suggests.

The latest SME Barometer produced by regional business advisor Azets reveals that 51 per cent of small and medium-sized enterprises (SMEs) across the UK and the Nordics are optimistic about the economic outlook, down from 68 per cent last summer.

UK SMEs are the least positive, with 40 per cent expecting the economic climate to worsen.

Despite concerns over the economy, 62 per cent of all SMEs expect their turnover to increase during the next year and 53 perr cent expect profits to improve.

Soaring cost inflation is the biggest day-to-day challenge facing the SME community, alongside serious recruitment problems, according to the study.

More than half of all SMEs (54 per cent) say they will increase digitalisation in the year ahead, with cyber-security, data analytics, remote working, e-commerce, and process automation ranking as top priorities. Cyber-security is of particular importance with 16 per cent of UK firms experiencing a cyber-attack or serious data breach.

Covid, cost inflation, employee wellbeing and recruitment were also referenced as key challenges, with almost two-thirds (64 per cent) of all SMEs reporting problems recruiting staff with the right skills.

Peter Gallanagh, regional chief executive for Azets in Scotland, said: “The Covid crisis has been particularly tough on SMEs, not only because they are more prevalent in the worst-hit sectors but also because they have fewer buffers - including access to liquidity - than bigger organisations. It is therefore no surprise optimism around the economic outlook has reduced, impacted by the potential for new Covid variants and the global cost of living crisis.

Peter Gallanagh, regional chief executive for Azets in Scotland.

“The impact on the global economy and the SME sector will be immense when we start to analyse the effect of sanctions, price fluctuations on commodities and disruption to the global supply chain.

“Despite this new uncertainty, SMEs remain committed to pivoting their business models and embracing digitalisation as the biggest opportunities to fuel growth. It is this flexibility and agility that will be key for SMEs as they continue to build their resilience and pursue their growth plans.”