Recent research commissioned by Close Brothers Asset Finance has cast a stark light on the mounting pressures faced by businesses across the UK.
The survey reveals that a staggering 71% of businesses have been adversely affected by rising operational costs, underscoring the financial strain permeating the sector. As we move into the second half of 2024, the data signals a critical juncture for small and medium-sized enterprises (SMEs), necessitating urgent government intervention to mitigate the risk of widespread financial distress.
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The survey details the multifaceted nature of these cost pressures. Energy costs, supplier expenses, fuel prices, interest rates, and rent were identified as the top five inflationary factors impacting businesses. Energy, in particular, emerged as the most significant burden. Furthermore, 67% of businesses reported an increase in business insurance costs over the past year. These rising expenses have inevitably led to negative cashflow for 56% of the businesses surveyed, reflecting the dire financial straits many are navigating.
The response to these escalating costs has varied. While 24% of businesses have fully passed these costs on to customers, a majority (61%) have only been able to do so partially, and 15% have absorbed the costs entirely. This cost absorption, coupled with a need to increase employee wages — reported by 54% of businesses — further compounds the financial pressures on SMEs.
Government figures paint an even grimmer picture, with the number of registered company insolvencies in England and Wales climbing to 2,361 in June 2024. This marks a 16% increase from May 2024 and a 17% rise from June 2023.
The composition of these insolvencies includes 302 compulsory liquidations, 1,866 creditors’ voluntary liquidations (CVLs), 170 administrations, and 23 company voluntary arrangements (CVAs). Every category saw an uptick compared to both the previous month and the same period last year.
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By GlobalDataOver the past year, from July 2023 to June 2024, the rate of insolvency stood at 55.8 per 10,000 companies, slightly up from the previous year’s rate of 55.1 per 10,000 companies. While this is significantly lower than the 113.1 per 10,000 companies observed during the 2008-09 recession, it is crucial to note that the current rate reflects a substantial increase from the lows experienced during the COVID-19 pandemic.
The financial landscape for SMEs in the UK is increasingly precarious. The combined effects of inflationary pressures, rising operational costs, and increasing insolvencies necessitate a comprehensive response from policymakers. The government must consider measures such as financial relief packages, tax incentives, and support for energy efficiency initiatives to alleviate the burdens on SMEs.
As SMEs form the backbone of the UK economy, their financial health is integral to overall economic stability. Without targeted support, we risk a scenario where the financial strain becomes insurmountable for many, leading to a cascade of business failures and economic downturns.
The government must act swiftly and decisively to provide the necessary support to ensure the resilience and sustainability of SMEs in this challenging economic climate.
In addition to government support, the finance sector can also play a crucial role.
A variety of finance providers are available, but as Anton Nebbe from Close Brothers, who commissioned the research, aptly notes: “By understanding these challenges, we can better assist our customers in developing strategies to mitigate these impacts and ensure long-term success.”
Rising costs impact 71% of UK SMEs: Close Brothers Asset Finance survey
