Small businesses are starting to feel the full impact of the cost-of-living crisis as consumers cut back on spending and prices rise. Many are holding off on plans to invest and expand their businesses as a result. It is against this background that the most recent meeting of the NatWest SME taskforce met to discuss the challenges for small business.
“It is an increasingly difficult climate in which to start, or grow, or run a business,” said Phil Bartlett from NatWest’s economist team. He welcomed the government’s energy price guarantee, but highlighted the market turmoil created by the response from financial markets to the mini-Budget. He said inflation and energy prices were still the top concerns for SMEs. Looking ahead to the next year, he warned that rising interest rates, predicted to go up to 6 per cent, could lead to a “cost of borrowing” crisis.
Charlotte Thomason from Enterprise Nation noted that despite the pro-business measures in the Budget, business and personal finances are intertwined for very small businesses. As a result their owners will be very cautious about investing when they have a mortgage and household bills to consider too. Josh Robson from the ScaleUp Institute agreed that the mini-Budget would hopefully encourage growth but highlighted they had heard from businesses and investors that “the mini-Budget didn’t speak at all to some of the talent challenges”.
“Literally nearly all businesses, 96 per cent, say they are concerned about the rising energy cost,” said Friederike Andres from the Federation of Small Businesses (FSB). Friederike shared the findings of a survey the FSB carried out with small businesses in the UK. Food services have seen particularly high energy cost increases and most businesses have had to raise prices. However, for some businesses such as high street shops raising prices is an unsustainable strategy as it will lead to fewer customers, adding to a footfall challenge that has persisted since the pandemic. She added that businesses were not keen to take on more debt, even through government-backed schemes, as they are concerned about repayments.
Net-zero efforts have also taken a hit, Andres explained, as even where businesses had been looking to invest in renewables or electric vehicles – something that would also reduce their energy costs and improve energy security – they just did not have the investment available to do this. The FSB is pressing the government to include small businesses in the actions coming out of the energy security strategy.
There was a more global perspective from Professor Mark Hart from Aston University, who introduced the findings of the most recent Global Entrepreneurship Monitor. The report surveys people in 50 to 60 countries asking questions about entrepreneurship activity and aspiration. “We’ve got a strong entrepreneurial foundation in UK,” Professor Hart said, “but that is at risk because of the sharp increase in the costs of doing business.”
“In 2020 people delayed entrepreneurial activity due to the pandemic,” he explained, “which recovered in 2021 and has levelled out in 2022.” Professor Hart pointed out there were still many individuals looking to set up their own business, that the gender gap had been closing in terms of starting businesses, and that women were more likely to drive activity in socially deprived areas. “There is also a high level of entrepreneurial activity from ethnic minority communities,” he said.
Professor Hart explained there were strengths and weaknesses in the ecosystem for entrepreneurs in the UK. “We’re good at starting, but businesses need leadership and management education to move onto the next stage,” he said. Cooperation and learning from each other is key to this. “Too many business owners feel as if they’re on their own, and that’s something we need to address,” he said. This needs investment in order to create that supportive environment for entrepreneurship.
Thomason said that mentoring was one of the key things that can help small businesses scale and grow. The CBI/NatWest report published earlier this year found that “wraparound” care is key. This means not just giving small businesses money but showing how it can be invested to prompt growth. “We want more corporate businesses to volunteer mentors to smaller businesses,” she said. “Small businesses see the cost as a prohibitive reason not to get mentoring, but don’t realise there’s free support out there through banks, local services and schemes like Help to Grow.”
What was clear from the meeting was that while the economic outlook remains uncertain, not least due to the challenges posed by rising inflation, there is a wide range of support at both a local and national level for SMEs in the UK. All the members present at the taskforce were keen to signpost what they can offer and get their assistance in front of as many SMEs as possible. Small businesses can also help and support each other. That can be by like-minded entrepreneurs giving advice to each other, or many businesses coming together to lobby for policy changes and support to address the collective challenges from skills to energy costs.