Restrained and hesitant SMEs risks stagnation in economy

Susan Love (Strategic Engagement Lead for ACCA Scotland)

MOUNTING challenges and a lacklustre Spring Statement mean small business recovery is stalling in Scotland according to the latest edition of the ACCA UK (the Association of Chartered Certified Accountants) and Corporate Finance Network (The CFN) SME Tracker.

The survey, which provides feedback from accountants of about 3,500 SME clients in Scotland, reveals only 42% of Scottish SME clients are actively looking to grow in the next six months, down from 50% in January. 

Further, accountants report that around a fifth (21%) of Scottish SMEs have put off or abandoned applying for finance in the past six months, compared with just 14% across the whole of the UK.

Small firms in Scotland appear to be less exposed to disruption arising from the conflict in Ukraine – 8% in Scotland, against a UK figure of 17%. Nevertheless, the continued geopolitical uncertainty, ongoing Covid impact, supply chain issues and spiralling cost increases are taking their toll on small firms. Accountants cite a significant worsening of the mental health of small business clients since January, with almost a quarter (23%) now highlighting this, compared to 6% in January’s poll. 

Following the Chancellor’s Spring Statement about reform of incentives to boost business R&D spending, the survey also explored SME uptake of the current R&D credit scheme. Positively, a quarter of Scottish respondents indicated there had been increased interest in the scheme from small firms over the last two years, however this compared with 40% across the UK.  Only 50% of accountants agreed that raising awareness would help take up, perhaps suggesting more needs to be done to make R&D investment support relevant to more small businesses. 

Susan Love, Strategic Engagement Lead for ACCA Scotland, commented: “While small businesses excel in adapting to new challenges, even the most resilient of firms will be exhausted by two years of turmoil. While understandable, the caution of small firms in the face of huge uncertainty could result in lower investment by firms, creating knock-on problems for economic recovery.”

“Now is the time to pull upon every lever of support, such as quickly reviewing schemes to support investment and innovation. While there were positive steps in the Chancellor’s statement last month, many small businesses are still looking for more help with immediate cost pressures, such as energy bills.”

She also urged small firms to consider the importance of seeking external advice to support their business through the current challenging phase: “Managing cashflow is crucial in times of volatility. Accountants are there to help small firms navigate the path ahead not only to survive but to plan investment to thrive.”

With the Recovery Loan Scheme ending in June, Kirsty McGregor, founder of The Corporate Finance Network, counsels the need for careful planning by accountants and their SME clients.

She said: “What we’re seeing here is stagnation at a time of possible stagflation. SMEs need to be better prepared for the future, to know their credit score and how to improve it and to be given alternative solutions to help them plan for growth. There’s an education and information gap from the government that needs to be bridged, so that effective decisions can be made.”

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