Rising costs putting over half UK SMEs at risk of collapse

A survey of over 1,000 UK small businesses has revealed that rising fuel and energy costs are now believed to be one of the greatest threats to SME survival in 2022. The SME Insights Report, published by small business insurance provider Simply Business, also found that one-third (36%) stated tax and national insurance hikes are their greatest concern.

The report found that 70 per cent of SME owners say that rising costs across the board are their biggest challenge this year. Half (49%) said that they are set to increase their prices to offset increased expenditure. One in five (21%) intend to raise prices by 6-10 per cent, and for almost one in 10 owners (7%), these increases could be as much as 20 per cent.

As a result, three in five (59%) small business owners are calling on the government to review or reduce the energy price cap. One-fifth (21%) state that the VAT cut needs to be reviewed or extended, and over one in 10 (12%) feel that the government should review or reduce national insurance.

While the energy price caps do not apply to businesses directly, millions of small business owners are still experiencing increased energy bills at a time when costs are rising in most operational areas. At the same time, with a substantial number of households affected by rising energy bills, consumer purchasing power is going down as people cut back on non-essential spending. SMEs in food and drink, hospitality, and retail are most at risk, decreasing revenue and income for small business owners still in the vital post-pandemic recovery period.

Looking at wider challenges, the report also found that a fifth (22%) of SMEs state a lack of funds or access to credit could lead to closure this year.

Greatest threats to SME survival in 2022:

  1. Rising fuel and energy costs - 54%
  2. Tax and national insurance hikes – 36%
  3. Lack of funds or access to credit – 22%
  4. Marketing and the ability to find customers – 26%
  5. Recovering from pandemic-related losses – 18%

87 per cent of small business owners lost an average of £20,981 each over the last two years, with many still suffering financially. The total cost of COVID-19 now sits at £109.6 billion  – with one in six (16%) believing they will never recover financially from the pandemic.

Three in five (62%) owners believe that the economy is set to worsen over the next six months. Despite this, many SME owners remain confident in their business’ ability to weather the storm.

This level of confidence is a stark contrast to levels reported during the pandemic, when in September 2020, one in five (17%) predicted that their business wouldn’t survive another lockdown.

Almost two years on, a third (34%) now say they’re more confident about their business’ prospects than 6-12 months ago, with 71 per cent very confident about their business prospects in 2022.

Alan Thomas, UK CEO at Simply Business said, “our SME Insights Report is a clear indication that small business owners want and need government support, with three in five calling for a review or reduction of the energy price cap.

“In the meantime, whilst the energy price caps do not apply to businesses, owners are seeing their energy bills increase overall. The surging cost of fuel and energy, alongside the overall rising cost of living, will understandably see households cut back on non-essential spending. There is a domino effect in place. The impact on consumer purchasing behaviour will trickle through to the books of small business owners, at a time when SMEs need our support the most.

“The latest rate rise also came with a clear recession warning and poses a serious risk to many small businesses. Sole traders and micro businesses will feel the pressure more than most. This all comes at a time when many are still in recovery mode. One in six believe they will never financially recover from the pandemic.

“While it’s encouraging that the majority remain optimistic about their business' chances, it’s clear that owners need support to weather the pressure of rising costs.”

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