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SMEs not returned to pre-Covid turnovers

Accountants believe that more than one in four UK SMEs have still not returned to pre-Covid-19 levels of productivity or turnover.

The latest Association of Chartered Certified Accountant’s (ACCA) SME recovery tracker revealed that four in five UK SMEs are not seeking finance to grow in the next six to 12 months with 30% of accountants stating that their clients will need to use an overdraft in the next six months.

A further third expects their clients to apply for secured or unsecured business loans within the same time period and nearly half, 45%, expect their clients to apply for eligible business grants.

The analysis, conducted in collaboration with the Corporate Finance Network (CFN), reported that over the last month alone, there has been a 10% drop in the number of businesses that are expected to still be trading in 12 months time, from 93% in November to 83.8% in December 2021. 

It also found that the number of SMEs expecting to make redundancies next year has increased 4% from 8% in November 2021 to 12.4% in December. This equates to more than one in 10 businesses.

ACCA states that the current Covid-19 variant Omicron has increased uncertainty for a large number of UK businesses as lockdown rumours continue to circulate.

Claire Bennison, head of ACCA said: ‘I’m extremely apprehensive about the trends this data has revealed on the state of UK SMEs. Not only for the businesses themselves, but these continuing financial issues are resulting in long-term damaging impacts on the wider UK economy.

‘Our research revealed that financial restrictions are the number one reason holding businesses back from putting a sustainability strategy in place, while a whopping 30% of accountants believe their clients still have low levels of digital readiness.

‘Without the right financial support for the SME economy, the UK as a whole is not going to move forward in becoming a leader in innovation – either in technology or sustainability – and that is a concern.’

Focusing on Welsh SMEs the analysis found that over four in five, 82.4%, of clients had returned to pre-Covid-19 levels of productivity or turnover, which is 10% higher than the UK average of 72.9%.

However, over half of Welsh SMEs are expected to use their overdraft facility in the next six to 12 months which is 20% higher than the UK average.

ACCA states that the figures for Scotland reveal a ‘less gloomy picture’ with 92% of SMEs expected to still be in businesses in the next 12 months and only half, 50%, of Scottish SMEs expected to use their overdraft facilities and do not anticipate needing any business loans in the coming six months.

Kirsty McGregor, founder, Corporate Finance Network, said: ‘Looking ahead, there are some major impacts coming in the new year, including business rates increases, an uplift in the national minimum wage, and the new health and social care levy introduction in April adding up to 2.5% to payroll costs, all of which will have a further negative impact on these struggling SMEs.

‘As we head into another period of increased Covid-19 restrictions, I am concerned about the future of the UK SME economy and call on the government to review their policies to provide longer-term support until this period of uncertainty is over.’

ACCA highlighted that there needs to be an ‘increased focus on the UK SME economy’ as the government push through their Build Back Better plans. The organisation calls for the government to offer more financial support to SMEs still struggling with the effects of the pandemic.

‘Small businesses are vital to how well the UK will bounce back and its productivity in the long-term and government initiatives need to reflect this,’ added Bennison.

 

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