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Breaking Point: 1 in 4 UK SMEs expected to struggle to meet payroll by 2022

Posted: 16th Feb 2022 by Hunter Gee Holroyd Business Advice General, Corporate Finance, Payroll

UK findings of the ACCA UK and Corporate Finance Network (The CFN) SME Recovery Tracker: Research reveals continued financial pressure on SMEs and a spike in reports of worsening mental health.

More than 1 in 4 (26%) of UK SMEs will struggle to meet rising payroll costs in April due to the incoming health and social care levy increase in National Insurance Contributions (NICs), as well as rising minimum wage rates, reveals a monthly SME Recovery Tracker from ACCA (the Association of Chartered Certified Accountants) and The Corporate Finance Network (CFN). This rises to 2 in 5 (40%) for businesses based in Wales.

The survey, which polls accountancy professionals on the financial outlook of their SME clients, reveals the mounting financial pressures – such as surging inflation at 5.4%, interest rate rises of 0.25% to 0.5%, heightened supply chain issues, the energy crisis, complications gaining access to finance, and now the social care levy – are all causing severe interruptions to business operations and SMEs’ ability to survive or grow.

Many UK SMEs are at breaking point, as accountants believe that more than 1 in 5 (21%) UK small businesses will run out of cash in the next 12 months. Welsh SMEs paint a particularly bleak picture about the current strains on small businesses. They are feeling the squeeze of the pandemic the most with almost half (47%) expecting to run out of cash in the next year. Scottish small businesses, in contrast, are the most optimistic, with only 7% predicting they will run out of cash.

The Mental Health Crisis for SMEs 

Economic, operational, and financial pressures are also taking their toll on the wellbeing and mental health of SMEs.

Over a third (35%) of accountant’s state that their SME clients are feeling more stressed and anxious than usual – this is a huge fifteen percentage point increase from pre-Christmas levels. The number of clients that say they have worsened mental health conditions has more than doubled to 17% since pre-Christmas, and those that are not sleeping (16%) and feeling that they are unable to cope (6%) have doubled in the last two months.

Across the UK, Wales recorded the highest levels of impact on mental health at 45%, a ten percentage point lead in SME respondents saying they are more stressed than the national average. Wales also experienced greater overall struggles including the highest levels of stress and anxiety (45%), difficulty sleeping (28%) and worsened mental health (34%). And while Scotland recorded the lowest levels in comparison to the rest of the UK, still a fifth (20%) of Scottish respondents recorded feeling more stressed and anxious than usual.

Appetite for growth hindered by access to finance

Over a third (38%) of UK SMEs are hopeful about growth ambitions in the next six months. Scottish SMEs are the most positive about their growth potential in the half of 2022, with this number rising to 1 in 2 (50%) SMEs. However, these aspirations are not matching up to the reality of SME’s financial situation.

Although the findings demonstrate an appetite for growth, two thirds (68%) of UK SMEs are unaware of finances available to them. This is particularly concerning as financial support may be of critical importance to many SMEs across the UK.

Claire Bennison, Head of ACCA UK, commented on the findings, “Our research reveals a very uncertain start to the new year for SMEs, countered with optimism about the long term for 2022. However, this essential progress cannot be achieved without the cashflow and people to help them grow, or indeed the resilience to do this too. With more than 1 in 4 (26%) UK SMEs anticipated to struggle to meet payroll in April, the government needs to seriously consider the economic implications of the planned hike in National Insurance rates and the impact it will have on UK SMEs who serve as a backbone to the UK economy. Ultimately, these figures point to the danger of businesses failing.”

Kirsty McGregor, founder of The Corporate Finance Network, adds, “All indicators across this Tracker are alarming. As our research suggests, the hike in National Insurance rates will leave already demoralised small business owners and sole traders in an extremely testing position. UK SMEs have already endured prolonged financial strain with 6% of UK SMEs expressing they are unable to cope.

“While SMEs remain hopeful and the findings demonstrate an appetite for future growth, the onus rests on the government to support SMEs, to provide them with the resources that they need, instead of placing more hurdles for them to overcome.”

Source: Corporate Finance Network