MORE than 1 in 5 (22%) of Scottish 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).
However, Scottish SMEs present a more optimistic picture in comparison to the UK national average, where this increases to more than 1 in 4 (26%) and Wales where the numbers rise to 2 in 5 (40%).
The survey, which polls accountancy professionals representing more than 8,000 Scottish businesses 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.
However, Scottish businesses remain optimistic about the opportunities for growth over the next 12 months, with only 7% of Scottish SMEs predicted to run out of cash in the next year, much lower than the UK national average of 1 in 5 (21%). Half (50%) of Scottish SMEs are actively looking to grow in the first half of 2022, compared to the UK national average of 38%, and almost half (45%) anticipate that they will employ more people in a year’s time.
However, artificial barriers may remain for those that do require additional finance to grow, with finance professionals estimating that just 40% of SME clients are fully aware of the types of finance available to their business.
Despite the positive outlook for Scottish SMEs, continuing economic and operational uncertainty is taking its toll on wellbeing and mental health. Given the impact of the Omicron wave, ongoing supply-chain disruption and cost increases, it is perhaps unsurprising that Scottish accountants state that one in five (20%) of their SME clients are feeling more stressed and anxious than usual.
Susan Love, Strategic Engagement Lead, ACCA Scotland, commented on the findings:
“While these results paint a more positive picture for Scotland, they also suggest that further challenges lie ahead for our small firms. Despite the aspiration to grow and create jobs, the mounting financial pressures placed on Scottish SMEs could tip many over the edge, threatening recent green shoots of recovery. As the Scottish Government looks to finalise its spending plans for the coming year, any available headroom should be used to minimise costs on small firms. Similarly, the UK Government should delay April’s National Insurance increase for 12 months to give small firms time to weather the coming storm of rising costs.”
Kirsty McGregor, founder of The Corporate Finance Network, added: “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.”
