Since 2015 there has been steady UK growth and some political stability. Due to this, the general consensus is that UK business confidence is reasonably positive. But what about SMEs in particular? What will the future of SMEs look like for the rest of 2018 and 2019?
SMEs are the heart of the UK economy, with over 5.7 million registered, representing around 99% of all businesses in the UK. In this blog we’ll cover five key areas, how they’ll change in the next year and what your business can do to prepare.
We’ve seen a fair amount taking place in the SME finance market, with a lot of noise around alternative lenders and the government continuing to encourage Banks to lend more to SMEs. This year there remains a rise in the level of confidence among SMEs who continue looking to borrow and invest, with default rates remaining at historically low levels, for now anyway. It seems that there is a much greater understanding of the different forms of credit available to SMEs. Other traditional forms of borrowing such as the bank overdraft are still falling away, and companies are increasingly realising that there are alternative forms of funding available.
However, there may still be some uncertainties for SMEs surrounding the EU exit negotiations being considered by the UK government. The economic uncertainty could last several years, which could then have an adverse impact on business and consumer confidence again, influencing a downturn, and for some and possibly a recession.
There is also the problem that, with alternative providers taking the ‘juicy bits’ of the business finance market, they are making it very difficult for banks to continue to operate business current accounts and remain profitable without charging higher fees. The likelihood of a rise in interest rates during 2018 is looking more likely. The fortunes of SME businesses in the UK, which are the cornerstone of the health of our economy, are closely tied to the fortunes of the consumer, and it is unclear how much spending power a rate rise could take away.
Making Tax Digital is a government initiative that has set out a vision for a new digital tax system. This means that by 2020, all businesses will have to submit their financial records digitally via cloud accounting software. SMEs tend to be more flexible than large businesses when it comes to adopting new methods and new technology. According to reports, 70% of SMEs are already using cloud accounting software or intend to do so in the near future. The only barriers SMEs state they feel in the report is fear of data security (heightened by the new GDPR rules), incurring costs and lack of internal knowledge. However the benefits do outweigh the costs and can even help SMEs to capitalise in the future.
For those few SMEs that are still using a paper-based system for accounting…this will need to go soon! If you’re also still using a spreadsheet then consider switching to a cloud accounting app. Some of the main benefits are having easy access to your figures all the time, real-time financial view of the company, less paper work for your company and integration with other apps to help manage all aspects of your business. You can find out more about our cloud accounting services here and how it can benefit your business. You can also contact me (details at the end of article).
It’s hard to avoid social media (Facebook addiction is real!) but as much as we engage in social media for personal use, SMEs need to start thinking about how it can potentially benefit their business. It’s reported that every 15 seconds, there’s a new user signing up to a social media site whether it’s Instagram, Facebook or Twitter. That’s even more reason for businesses to create corporate profiles online and connect with users who could become potential clients.
Despite there being evidence that social media can be beneficial for businesses, surprisingly over half of SMEs in the UK don’t use social media. On Instagram, up to 76% of SMEs admitted not using the platform despite there being 1billion active users. Industry experts say that we are now in an age where consumers expect for businesses to engage with them online, therefore SMEs who don’t have an online presence should be worried.
If your business struggles with social media or doesn’t know where to start there are a few marketing experts that offer free advice online such as Neil Patel and Jeff Bullas. If you’re worried about finding the time to schedule posts on social media there are free apps that can help you manage them such as Hootsuite and Buffer. Worried about whether you’re not creative enough to produce content? You can try out Canva which has pre-made designs for infographics, presentations, social media posts and flyers. These things are free, easy to use and will help you make a great start to using social media for your business.
We repeatedly hear and read about automation software and how companies need to be investing in these in order to be more streamlined. Examples of automation in accounting include cloud software, whereby you can possibly cut your bookkeeping time in half. Some cloud apps can automate 80% to 90% of transactions for clients. Technology is getting smarter and ultimately your SME should adopt technology that will cut long processes so that you can dedicate more time to running your business.
News of chatbots for example have shown that that they can greatly improve customer service, drive sales, increase social media engagement and improve company performance. Pre-programming a chatbot to be able to answer basic to moderate queries can significantly help your business by reducing time spent solving these issues. This means you’ll be able to focus on the more important aspects of your business.
Adopting such software doesn’t need to be expensive and you can always start small. For example, if you have a business Facebook page, you can programme the Messenger app to greet users and create simple responses. There are also other plug-ins you can use.
As SMEs start to adopt cloud software and other automation technology, it may be the case that they will also employ fewer people. This will help to save time and money. In the case where “employees” will be needed, small businesses will likely be hiring people on a temporary basis with no employment contract. We see this happening now with the rise of the “supertemp” and popularity of the gig economy.
Highly educated or qualified specialists are now working as contractors on a project basis. Many SMEs today have started using temp agencies to connect with solo professionals who are not looking to settle down in one place, but would rather come in, complete what needs to be done, and then move on to the next location. SMEs will need to prepare to scale down but also practice a good working relationship with temps.
If you need advice on any of these changes or worried about how your business will handle these changes, please contact me on email@example.com or 020 3146 1607.
By Roy Butcher, Partner