# SMEs facing an uncertain future
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-12-19
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: The Impact of Economic Instability on UK SMEs
Meta Description: Discover the impact of soaring costs and late payments on SMEs in the UK. FreeAgent's latest research reveals worrying statistics on business survival and
URL: https://financedigest.com/smes-facing-an-uncertain-futurehtml

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![Roan Lavery, Co-Founder & CEO, FreeAgent](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/roan-lavery-450x440-1736814710125-compressed.jpg)

_By_ **_Roan Lavery,_** _Co-Founder & CEO, FreeAgent_

The UK is currently in a major period of instability. Soaring energy costs, economic volatility and the ongoing [cost of living crisis](https://www.financedigest.com/5-ways-to-support-your-employees-during-the-cost-of-living-crisis.html "5 ways to support your employees during the cost of living crisis ") have impacted millions of SMEs across the country.

SMEs, unlike their larger counterparts, are unable to easily absorb rising costs and issues arising from [late payments](https://www.financedigest.com/the-late-payments-toolkit-how-to-keep-the-cash-flow-strong.html "THE LATE PAYMENTS TOOLKIT – HOW TO KEEP THE CASH-FLOW STRONG"). It is harder for them to maintain a healthy cash flow during turbulent times, [leaving many struggling to survive in the current](https://www.financedigest.com/more-than-half-of-workers-are-open-to-leaving-their-current-employers.html "MORE THAN HALF OF WORKERS ARE OPEN TO LEAVING THEIR CURRENT EMPLOYERS") economic landscape.

It is undeniable that the current situation has [negatively impacted](https://www.financedigest.com/how-gdpr-could-negatively-impact-the-careers-of-finance-professionals.html "How GDPR could negatively impact the careers of finance professionals") SMEs. At FreeAgent, we’ve been conducting research to determine how detrimental it has been for [small businesses](https://www.financedigest.com/10-dirty-tricks-for-small-businesses-to-watch-out-for-when-negotiating.html "10 dirty tricks for Small Businesses to watch out for when negotiating"), and the results are fairly sobering. Our latest research found that an astonishing 64% of business owners said they were worried their [businesses](https://www.financedigest.com/german-businesses-expect-only-mild-recession-as-disruptions-ease.html "German businesses expect only mild recession as disruptions ease") won’t survive the next 12 months – with many saying they didn’t expect to receive any help from the government to keep their businesses afloat.

There is also a disparity of opinion between [business owners and accountants regarding the current – and future – political and economic outlook](https://www.financedigest.com/lighting-maker-signify-cuts-2022-outlook-again-on-china-business-lighting.html "Lighting maker Signify cuts 2022 outlook again on China, business lighting") of the UK. While 1 in 5 (22%) SMEs have faith that there is a much greater chance of their business surviving now that [Rishi Sunak](https://www.financedigest.com/british-pm-rishi-sunak-pledges-further-action-on-strikes-to-protect-lives.html "British PM Rishi Sunak pledges further action on strikes to ‘protect lives’") is Prime Minister (compared to previous leaders), just 7% of accountants feel the same.

**[Policy decisions](https://www.financedigest.com/asian-shares-rise-dollar-dips-ahead-of-fed-policy-decision.html "Asian shares rise, dollar dips ahead of Fed policy decision") – a help or hindrance?**

[Businesses are soon to feel the mounting pressure of staying afloat as the government’s recent Autumn Statement focused heavily on tax](https://www.financedigest.com/5-common-tax-mistakes-small-businesses-make-in-australia.html "5 Common Tax Mistakes Small Businesses Make in Australia") increases and spending cuts. This includes the decision to freeze the VAT registration threshold of £85,000 until at least March 2026. We need a multifaceted [solution to ensure](https://www.financedigest.com/vias-cloud-based-solutions-ensure-painless-office-move-for-insurance-body.html "VIA’S CLOUD-BASED SOLUTIONS ENSURE PAINLESS OFFICE MOVE FOR INSURANCE BODY") the UK can secure a path to long-term sustainable growth, and yet this does not seem to be in the pipeline at this moment.

Future tax [cuts could potentially lead to a healthier job](https://www.financedigest.com/icrc-to-cut-some-1500-jobs-as-humanitarian-budgets-seen-sliding.html "ICRC to cut some 1,500 jobs as humanitarian budgets seen sliding") market for accountants and geographical expansion for SMEs. However, more than a third (37%) of accountants and 22% of SMEs [say they would use any future tax cuts](https://www.financedigest.com/amazon-ceo-says-job-cuts-to-exceed-18000-roles.html "Amazon CEO says job cuts to exceed 18,000 roles") announced by the government just to stay afloat as the current economic volatility is sure to have a lasting impact.

Almost 2 in 5 (37%) of [respondents said they were not confident that the government will step in to support businesses](https://www.financedigest.com/pitiless-machines-will-kill-your-business-if-you-dont-respond-now-warns-servion.html "‘Pitiless machines’ will kill your business if you don’t respond now, warns Servion") facing an economic environment about to enter a long recession.

**Are pressures on SMEs becoming insurmountable?** Understandably, Covid and [Brexit have had a major impact](https://www.financedigest.com/brexit-might-impact-our-migrant-pool-magazine.html "“Brexit might impact our migrant pool.”-Magazine") on both accountants and SMEs. Not only have businesses had to grapple with new legislation, [supply chain](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments") issues and lockdown closures, they’ve also had to navigate rising energy bills, inflation and finding the right staff – all of which were cited in our research as top pressures for both accountants and SMEs.

Despite needing to find and retain the right staff, 26% of accountants say they have implemented hiring freezes, almost a quarter (24%) of SMEs have reduced employee [benefits as a result of the cost of living](https://www.financedigest.com/healthy-lifestyle-benefits-a-guide-to-better-living.html "Healthy lifestyle benefits – a guide to better living") crisis, and 25% have halted training programmes. However, only 12% of [accountants have sacrificed staff training](https://www.financedigest.com/metapraxis-launches-accountancy-training-course-accounting-intuition-in-partnership-with-cima.html "Metapraxis launches accountancy training course ‘Accounting Intuition’ in partnership with CIMA"), highlighting how essential it is to upskill their staff and remain compliant. In a world where digital transformation is a must, both [SMEs and accountants say they would rather reduce employee benefits](https://www.financedigest.com/5-benefits-of-iso-9001-certification-for-smes.html "5 Benefits of ISO 9001 Certification for SMEs") (avg 23%) than cut spend on technology (avg 11%).

SMEs are known for their unwavering resilience, but they cannot survive on their own. Small businesses need the support of experts from across multiple different areas, with the role of the accountant, in particular, likely to [become more important than ever in the coming years](https://www.financedigest.com/2022-the-year-future-payment-trends-become-reality.html "2022 – the year ‘future payment trends’ become reality?").

Accountants will inevitably become trusted, expert advisors to SMEs, as their knowledge and guidance around Making [Tax Digital](https://www.financedigest.com/self-employed-taxpayers-and-making-tax-digital.html "Self-employed taxpayers and Making Tax Digital") (MTD) – a key part of the government’s plans to make it easier for businesses to get their tax right and keep on top of their affairs – will prove invaluable. Given the current direction of travel on interest rates, in particular, it will be essential for SMEs to know where to turn for support and advice, and where they should be looking for [access to funding](https://www.financedigest.com/55-of-uk-smes-unable-to-access-all-funding-needed-to-grow.html "55% of UK SMEs unable to access all funding needed to grow") and finance.

**What can be done to help SMEs not only survive, but thrive?**

Our research shows SMEs want the government to expand the energy cap to cover small businesses (43%), introduce new government loans specifically for energy bills (37%) and to implement a [windfall tax on energy/fuel companies](https://www.financedigest.com/exxon-sues-eu-in-move-to-block-new-windfall-tax-on-oil-companies.html "Exxon sues EU in move to block new windfall tax on oil companies") (33%).

Accountants, on the other hand, agree that a [windfall tax](https://www.financedigest.com/equinor-evaluating-impact-of-british-windfall-tax-on-projects.html "Equinor evaluating impact of British windfall tax on projects") (43%) would be the most useful thing for the government to introduce, alongside expanding the energy cap (41%) and introducing government-driven discounts on bills (34%).

[Small businesses](https://www.financedigest.com/how-banks-will-evolve-to-support-small-business-owners.html "How banks will evolve to support small business owners") form the backbone of the UK economy. It is crucial that the government [steps in to create an environment that facilitates](https://www.financedigest.com/exclusive-naftogaz-ceo-prepared-to-step-down-if-it-would-facilitate-debt-deal.html "Exclusive-Naftogaz CEO prepared to step down if it would facilitate debt deal") growth for SMEs and allows them to thrive. Our research currently paints a fairly bleak picture for the UK economy, and with a majority of respondents believing their [businesses will fail in a year’s](https://www.financedigest.com/2018-is-a-year-of-regulation-is-your-business-ready.html "2018 is a year of regulation – is your business ready?") time, action must be taken now to protect these enterprises.

**_Roan Lavery is CEO and co-founder of FreeAgent, who make award-winning cloud accounting software for small businesses and accountants._**


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