Contribution of SMEs to the UK Economy
SMEs are a large and integral part of the UK economy, where they account for 99.9% of all private sector businesses. The following stats illustrate the significance of SMEs for the economic well-being of the UK.
In 2017, SMEs accounted for
- 51% of all private sector turnover with a total combined turnover of £1.9 trillion
- 60% of all private sector employment with a total of 16.1 million people employed
- at least 99.5% of the businesses in major sectors
In addition to these, total business population in the UK has been continually increasing – by 4% since 2016 and 64% since 2000 – reaching a record of 5.7 million private sector businesses in Jan 2017.
Roadblocks for SME Growth
Despite the significant growth in number of SMEs, that growth does not come easy. Today, SMEs face many challenges including uncertainty created by Brexit, competition from large chains and digital players, the necessity to keep up with the ever-changing innovative landscape, expansion and development considerations, such as funding, and tackling the productivity problem.
A Yougov survey of 1000 SMEs suggested SMEs have negative confidence levels for their own companies, industries and UK economy in general. There are multiple factors contributing to this, main one being Brexit and the uncertainty surrounding it. We have a separate section focusing on Brexit, so I’ll leave this for later. Now, let’s focus on the rest.
Competition is not a new challenge for SMEs. In different shapes and forms, all businesses face competition. The key here is being able to differentiate against the competition, whether that be superior customer service, higher quality products and so on. Efficiently managing your cash holdings and maximising your return could help you sharpen your competitive edge or build one by having extra to invest in projects in line with that goal.
Keeping up with the pace of technology and digitalisation is another major challenge. Longitudinal Small Business Survey of 2016 found that 39% of SME employers had innovated in the last three years, either through the introduction of new or significantly improved goods or services, and/or the introduction of new or significantly improved processes. Considering 64% of the innovations were by companies in information/communications, for which innovation is a must to survive, there is a long way to go for SMEs in general.
This leads to the other challenge faced by most SMEs: roadblocks for expansion and development. Obtaining traditional financing has always been problematic for a large proportion of SMEs. This problem, in fact, made crowd-funding and peer-to-peer lending as popular as they currently are. However, it is still a work in progress that requires more to open up to such alternative channels and digital solutions in general.
Most UK businesses have issues with productivity and find that problem particularly difficult to tackle. The key to productivity is developing the capabilities to be flexible and lean in order to adapt to the ever-changing landscape. This can only be attained through investments in the growing digital economy and innovations in products and processes. The result will be not only increased profit margins but also the ability to adapt and change your business model as necessary, where the latter might deem even more important for long term survival.
SMEs in post-Brexit UK
In an environment, where the hopes for a soft Brexit are close to zero, the implications of a hard Brexit on UK SMEs raises a lot of question marks. So far, the impact of the decision has been both negative and positive depending on whether you have an export or import perspective. Resulting from the devalued sterling, exporters enjoyed improved returns and UK attracted more tourists since it became a cheaper destination. However, importers are highly likely to see a negative impact on their bottom lines, if they haven’t seen this already.
As deemed highly important for the UK economy’s well-being before Brexit, SMEs are also crucial post-Brexit
1. Cash is king
Cash is key for overcoming a period of uncertainty. For many SMEs, Brexit made it impossible to plan for the future. This might mean your business has not been investing as much as it used to, leading to accumulation of cash in your balance sheet. Do you know that your cash can yield 5-10 times more if invested effectively? For hassle free cash management, Akoni can help you.
2. Access to single market
Losing access to the single market might mean losing access to 500 million potential customers and 26 million businesses in addition to losing access to the diverse talent pool. Depending on your scale, these might be critical or less important, however being able to address these issues is important for the UK economy. People are key for most start-ups and SMEs. Therefore, investing in areas to make it appealing for talent to work for your company despite Brexit is highly important. This is another area where the extra earnings on cash can be channelled.
3. Long standing relationships with banks
Brexit might also mean the obligation to form a relationship with another bank from scratch. This could be time-consuming, taking anywhere from a couple of months to years. For your deposits, Akoni offers you a shortcut, where you can build your relationship with us – in an amount of time that is significantly less than the above – and utilise our existing relationships with our panel banks.
There is no doubt that the coming few years will be interesting to watch. However, with difficulty comes opportunity.