Restrained and hesitant SMEs are not acting to secure future success

Anticipated impacts from the war in Ukraine and lack of substantial support at the Spring Statement are causing stagnant SME growth, finds the latest edition of the ACCA UK (the Association of Chartered Certified Accountants) and Corporate Finance Network (The CFN) SME Tracker.

Capturing the feedback of some 8,400 UK SME clients through their accountants, 17% of SMEs say they are negatively affected because of the conflict in Ukraine, mainly due to pressures on supply chains and global economic uncertainty.

SMEs are also hesitant when selecting finance options available to help them grow, with 14% putting off or abandoning applications for more finance in the last six months, rising to 21% amongst Scottish SMEs. Just 36% of SME clients are actively looking to grow in the next six months, revealing another sign of stagnation.

ACCA’s recent quarterly economic survey predicts that the Bank of England underlying interest rate is likely to peak at 1.5% at the end of 2022, foreshadowing a more difficult financing landscape for SMEs that do need to access cash for growth.

The benefits of R&D tax credits are also not being explored by SMEs with 40% not investigating or enquiring about them, despite the Chancellor’s recent Spring Statement which said these were being reformed to boost productivity growth. Only 45% of accountants agreed that improved education amongst SMEs about the schemes would increase their take-up.

ACCA UK and The CFN warn that inaction at this crucial time could lead to opportunities for growth being missed.

In a separate poll of 50 private businesses’ in-house finance teams, the Tracker found evidence that a rising number of businesses may be facing difficulties with cashflow. Around 17% of businesses were experiencing increased instances of late payment and in the last 12 months 24% had sought to access cash through tightened payment terms, demonstrating that businesses are having to act on late payment to shore up the cash position of the business.

Lloyd Powell, Head of ACCA Cymru/Wales, explains: “There’s a sense of restraint amongst UK SMEs now – a worrying sign of not preparing for the future, perhaps because of global and domestic economic turbulence and uncertainty due to the war in Ukraine. It’s more important than ever that government and professional advisers work together to identify and support SMEs that are eligible for investment schemes to help businesses innovate and grow. With the announced review into investment and innovation schemes, now is the time to act to ensure these schemes incentivise the right activities. Accountants can help SMEs with opportunities for growth, so it’s vital that they can point SME clients in the direction of opportunities that are practical and relevant to their growth.”

With the Recovery Loan Scheme ending in June, Kirsty McGregor, founder of The Corporate Finance Network, counsels the need for careful planning by accountants and their SME clients, saying: “What we’re seeing here is stagnation at a time of possible stagflation. SMEs need to be better prepared for the future, to know their credit score and how to improve it and to be given alternative solutions to help them plan for growth. There’s an education and information gap from the government that needs to be bridged, so that effective decisions can be made.”