Growing firms face challenges, but there are positive signs for the year ahead

08 March 2024

At a glance

News that the UK went into recession at the end of 2023 is a reminder of the tough economic environment facing small businesses. But despite this, the outlook for SMEs in the UK is cautiously optimistic.

According to figures from the British Chambers of Commerce, business confidence improved in Q4 of 2023, with 56% of companies expecting an increase in turnover in the coming year1.

We spoke to small firms to discover the causes of their improved mood, gauge their expectations and hear what opportunities and challenges they still face. Most say that, as inflation eases, they’re breathing a little easier. Others are still feeling the pinch from the cost-of-living crisis.

Plenty of challenges remain, including the weak economy, finding and retaining staff, keeping up with technology and encouraging cautious customers to spend their spare cash again. But small firms are finding inventive and agile ways to address these problems.

Election hopes

Research by small-business finance company Iwoca suggests growth is improving in the sector, with 47% of small firms saying they expect their turnover to grow in 2024 – up from 26% in 20232. There’s better news for employees too, with a quarter of businesses expecting to increase head count this year – up from 6% last year.

Richard Michie, CEO of digital agency The Marketing Optimist, suggests the build-up to the UK election could be helping. “Some SMEs did feel the gloom of the end of 2023,” he says. “The marketing sector is usually on the front line of cuts, so we felt that too. World and UK politics are in a mess, affecting SMEs, their suppliers and customers.

“But since the New Year, we’ve seen an upsurge in businesses approaching us for support. The feeling is a new government would face many challenges but bring optimism and hope. With luck, this will trickle through and businesses will start investing again.”

Richard says the main challenges for his firm are:

• artificial intelligence (AI) “making businesses think they can abdicate responsibility for marketing to a robot”
• the “yoyo economy”, which is eroding confidence all around
• finding and retaining staff, although he says keeping wages competitive and moving to a more flexible, hybrid-working scheme have helped with the latter.

Prices easing;

Last year’s spikes in headline inflation have dropped to more manageable levels, and some prices are even falling. For example, data from the Office for National Statistics shows producer input prices actually fell 2.8% in the year to December 20233, providing some welcome relief for businesses.

Cheryl Sharp, founder and CEO at SME-focused accountancy firm Pink Pig Financials, says: “Our clients struggled through January to September 2023. In Q4, they found more stability, with supply chains easing, prices levelling and some even reducing. There is more confidence they can grow into 2024.”

Pink Pig’s supplier costs also jumped in Q2 and Q3 2023, but then settled again. “We had to increase our pricing, but clients are receptive,” says Cheryl. “I feel good about 2024, and we’re confident we will grow.”

However, cash flow is still a challenge for everyone, largely caused by overdue debtors. To combat this, Pink Pig Financials updated its credit control policy to help enforce existing rules, such as charging statutory interest on late payments. It also now “downs tools”, meaning the team stops services due to non-payment. “We do this gradually and leave essential services such as payroll, as it’s not the employees’ fault their employer hasn’t paid,” says Cheryl.

Hoovering up growth

Garry Brown, Managing Director of vacuum cleaner repair firm PHC Vacuum Service, has grown his firm to 20 employees and is now looking to expand with a franchise model. The firm grew about 9% last year, but he anticipates double figures this year.

“I feel extremely confident,” says Garry. “There are always challenges. We just focus on what makes us successful. One big thing in our favour is environmentalism and the ‘repair, not replace’ movement. Also, new vacuum cleaners are increasingly expensive.”

PHC also built its own software, which allows it to automate as much as possible, save on subscriptions and provide a better service. For example, its route-planning software enables engineers to give customers an exact time for appointments, rather than a window.

Garry says the main challenges to his business are recruitment and absenteeism. “If you need three members of staff, you have to employ four because one will always be off,” he says. “Everyone I speak to says the same and it’s getting worse.”

Cost-of-living fallout

Data from Deloitte provides more evidence the recession may be short-lived. It shows consumer confidence has grown for five consecutive quarters to its highest level for two years4. And consumer expenditure increased – for example, spending on non-essential goods and services rose 3.4% over Q4 2023.

Barbara Cossins, founder of food label Love Local Trust Local, and owner of The Langton Arms, Dorset and Rawston Farm Butchery & Shop, says her businesses have yet to feel this positive effect, mainly due to adverse news stories about the cost-of-living crisis.

“People either have no disposable income or they’re hanging onto it,” says Barbara. “We thought Christmas would be good, but it wasn’t. We’re still worried about the cost of food, energy and another National Living Wage increase due in April 2024.” 

She says the best way to counter these problems is to keep working with local suppliers and trying to put value and quality on customers’ plates.

Time to diversify

Global awarding body the Digital Skills Authority started in 2016 and has grown to an estimated value of £8.2 million. President Deborah Collier says she is optimistic about the small-business sector but recommends other UK-based firms build resilience by diversifying wherever possible.

She says the growth of AI and the Fifth Industrial Revolution – building an economy based on human–machine collaborations – are driving business hopes. “Many tools are helping businesses grow and increase productivity,” she says. “AI is accessible to everyone providing they have the skills and training.”

But she says the UK has suffered from economic turbulence, and most of her clients are international.

“Businesses can be positive if they diversify geographies and income sources widely, looking for markets where there is interest and growth,” says Deborah. “You need to be agile and move quickly with trends. We have more than 30 service or product offerings and growing, so if one revenue stream isn’t working, you can look for another.”p>

Though overall confidence has improved, there is clearly still a mixed picture of growth and sentiment in the UK small-business sector. SME owners need to plan carefully to maintain resilience and navigate ongoing volatility.

To discuss how changes in the business environment affect your personal financial plans, contact your adviser.


1British Chambers of Commerce, ‘Quarterly economic survey Q4 2023’, January 2024 (Based on a survey sample size of more than 5,000 firms across the UK, 91% of whom have fewer than 250 employees)
2Iwoca, ‘SMEs in 2024: optimistic for growth but indifferent about politics’, January 2024 (Based on a survey sample size of 500)
3Office for National Statistics, ‘Producer price inflation, UK: December 2023 including services, October to December 2023’, January 2024
4Deloitte, ‘Deloitte consumer tracker’, February 2024 (Based on a survey sample size of 3,187)

SJP Approved 21/02/2024

Request a call back

It takes two ticks to complete the contact section below and we will call you back at the earliest opportunity.

    Select a time for a call
  • Illingworth Seddon together with St. James’s Place Wealth Management plc are the data controllers of any personal data you provide to us. For further information on our uses of your personal data, please see our Privacy Policy or the St. James’s Privacy Policy.

Background image