Overall we received 320 responses to our most recent question set, from a wide range of regions and sectors. These responses prove invaluable in helping us to better understand the challenges and opportunities facing SME business owners like you.
Findings
SMEs are the lifeblood of any economy and here in the UK we are lucky to have some of the most innovative, dynamic and resilient businesses on the global stage.
These characteristics will be vital for businesses over the coming months as owners face some of the toughest trading conditions in recent times.
Understanding how these conditions impact businesses such as yours, enables
us to better serve the SME community. We use your insights to help us tell the SME story; to raise awareness of what help is required from legislators, advisory professionals and finance providers. Furthermore, your responses help us adapt our own offering to allow us to deliver the best service we can to meet your specific requirements and support your business journey.
Our survey has found cash reserves to be a real and growing concern for SMEs, as many find their bank balances depleting as the costs of doing business increase.
Whilst many firms have already changed their pricing to protect margins, it can take some time for new prices to work their way through the customer base. To ease this cash crunch, access to finance will play a critical role over the coming months. It is likely that conditions will continue to be challenging for some time yet, but at Capify we will continue to help small business owners in any way we can.
Key findings
A growing number of business owners are facing a shortage of cash in the bank. Our Q2 Business Confidence Survey revealed that bank-held cash levels had nearly halved in the past six months, with the average now standing at £95,726 (compared to £188,474 in Q4 2021). Accordingly, 55% of SME businesses are now worried about the amount of cash in the bank – up 5pp on from Q4 2021.
For many firms, this cash crunch is a direct result of the inflationary crisis and the impact on costs throughout the supply chain. Although 56% of respondents have adjusted their prices to mitigate the impact of inflation, many face a lag between incurring higher production costs and implementing new pricing with their customers.
As a result, just under half of respondents (45%) cited reduced cash reserves as a direct consequence of inflationary impacts, whilst over one third saw a reduction in working capital.
Unsurprisingly these operating challenges have exerted downward pressure on turnover and profitability performance for many UK SMEs. The number of businesses who had grown turnover in the past year was down 8pp on the previous quarter – from 57% to 49% – whilst the number of businesses who grew profits in the same timeframe dropped by 11%.
The Capify Confidence Survey, also found that firms were holding back on investment. When asked about areas in which they intend to invest over the coming year, UK SMEs identified an average of just 1.41 initiatives, compared to 1.63 in Q1 of this year. Perhaps reflecting the ongoing labour market challenges, 40% of firms intend to invest in the recruitment and retention of staff, whilst planned investments in green and sustainability initiatives saw the biggest quarterly drop, from 21% to 10%.
The survey uses business owners’ responses on business performance, confidence, and investment intentions to produce an overall confidence score between -10 (very unconfident) and +15 (very confident).
John Rozenbroek, CFO/CCO at Capify, said: “Understandably, as inflation soars and the economy contracts, SME outlook is left in a very fragile state. Confidence is at the lowest point since we launched the survey. Our Q2 confidence score now sits at -2.70, a significant downgrade on the 7.68 we saw in Q1 of this year.
“But it’s not just confidence which is impacting growth potential. We’re beginning to see the very real operational implications of this inflationary period”.
“This is having a knock-on effect on business’ ability to make strategic investments for the medium- and long-term.”
Despite these significant challenges, UK SMEs continue to show the resolute resilience that has become a hallmark of smaller businesses over the past three years. Most surveyed firms remain bullish in the face of prevailing conditions, with 61% of businesses expecting revenue growth over the next 12 months and 40% anticipating headcount additions.
The survey also revealed that access to finance continues to be a real concern for UK SMEs however. Only 40% of respondents felt confident they would be able to secure finance from their bank, down 8pp from Q1 2022.
Mr Rozenbroek added: “We know that access to finance is vital for smaller businesses struggling with these unprecedented challenges. UK smaller businesses are the lifeblood of our economy and when they stop investing and creating jobs it has wide implications.”
“At Capify, we will continue to be there to support SMEs with finance provision for both short-term working capital and cash flow requirements, as well as longer-term investments.”
About the survey
The survey ran in July 2022 and received over 320 responses from UK SMEs across a wide range of sectors, including information technology, manufacturing, professional services, retail and IT services. Almost 60% of respondents had been trading for over 15 years.
About Capify
Capify is an online lender that provides flexible financing solutions to SMEs seeking working capital to sustain or grow their business. Alongside its sister company, Capify Australia, the fintech businesses have been serving their respective markets for over 15 years.
