Latest quarterly survey reveals continued trading difficulties but growing resilience in UK SME sector
Business confidence in UK SMEs remains at historically low levels, according to the Q4 2023 survey from alternative finance provider Capify. Released in January, Capify’s SME Business Confidence Survey revealed that overall business confidence remains at its lowest level since Q4 2022, with smaller business owners grappling with ongoing financial, market and staffing challenges.
Only 45% of respondents revealed turnover growth in the past three months, a 4pp drop quarter-on-quarter. At the same time, just 40% of businesses reported a growth of profitability in the same period. These findings reflect an ongoing sense of unpredictability and difficulty in accurately forecasting future business performance. Indeed, 40% of respondents reported that they were operating behind their targets for the final quarter, whilst only 25% felt they were ahead of where they expected to be for the period.
Produced quarterly, the Capify SME Business Confidence survey canvasses the insights of hundreds of SME business owners from across the UK on areas of current business performance, trading forecast and investment intentions. It uses the data to produce an overall confidence score between -10 (very unconfident) and +20 (highly confident). The confidence score now sits at -4.10, a 0.10 point drop from the prior quarter or 6.03 points below the rolling quarterly average.
Cash situation improves, but late payment persists
Reduced cash reserves have been a large contributor to the overall fall in confidence in recent surveys. But the latest survey found that the average cash in bank position had improved in the fourth quarter. Possibly in response to greater efforts to control cash collection, SMEs are now reporting an average cash in business balance of £92,652 in their business, an increase of £13k on the previous quarter. Correspondingly, the number of SME owners worried by their cash position has fallen, with 55% worried about the cash they hold, a reduction of 20pp on Q3 2023.
Any concerns around cash reserves are undoubtedly accentuated by issues related to cash collection and despite the improvement to cash balances, late payments continue to grow as a problem. Nearly one-in-three business owners (30%) stated that customers and clients are taking longer to pay their invoices than in previous years, an increase of 9pp on the previous quarter. Meanwhile 45% say that ongoing late payments have had a negative impact on their cash flow position.
Growing resilience
Despite the prevailing operating challenges denting the confidence of UK SMEs, the outlook for the year ahead is more bullish. Perhaps buoyed by positive indications that the worst of the most recent economic challenges may be behind us, 65% of SMEs are expecting turnover to grow in 2024 whilst 67% expect to grow profits in the same period.
There is also evidence to suggest that SMEs are developing a growing resilience to the turbulence of the last few years. The average number of issues keeping smaller business owners awake at night has fallen to 2.71 – a reduction of 0.88 on Q3’s finding. The main worries were identified as rising costs and inflation (46%); cash flow (45%); and finding new customers (40%).
Investment stalling
This growing resilience to a new ‘operating normal’ has not yet translated to an increase in investment intentions though. Overall, the number of areas in which respondents were looking to invest has decreased slightly quarter-on-quarter. On average, SME owners are looking to commit to 1.83 investment activities or areas in the next 12 months. This is a small decrease on the previous quarter, where owners expected to be funding 2.55 separate investment areas. Continuing the trend of a cautious approach to any recovery, the amount SMEs expect to commit to these investment areas has also fallen from £44,659 in Q3 2023 to £21,169 in Q4.
John Rozenbroek, COO/CFO at Capify, said: “Our most recent survey findings will come as no real surprise to anyone who runs, or works with, an SME. The trading continues to be incredibly challenging and, after several year of facing headwinds, there is a palpable sense of fatigue in the SME community:
“The survey results emphasise how challenging it is to accurately forecast in periods of uncertainty and the impact that has on meeting targets. We also see, again, the detrimental impact late payments have on smaller businesses. Both of these factors can have a hugely negative effect on company cash flow”
Financing needs
Cash flow management is a critical factor in businesses of all sizes. But for SMEs it can be the difference between survival and closure. Indeed, the survey found that just under half of smaller businesses have, at some point in their existence, required an input of external finance, whilst 35% expect to need future external finances to support working capital or cash flow needs.
“Although confidence remains low, the recent drops do appear to have plateaued,” says Rozenbroek. “We can infer from this that we may have reached the bottom of the confidence trough and that SME owners are cautiously optimistic that conditions will improve in 2024. But, until that recovery really takes hold, SMEs will continue to face some trading uncertainty and the attendant cash flow challenges that presents. Our survey gives us the insights we need to fully understand these unique SME challenges and support owners and operators with innovative financing solutions.”
Capify offers a range of business loans to help support small businesses throughout their growth journey. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.
