This is how UK small businesses are managing despite rising costs
According to the latest Sage small business tracker, rising operational costs, mounting financial pressures, and pivoting business strategies are creating a challenging economic landscape for SMEs.
But despite growing headwinds and challenges, such as higher costs and economic uncertainty, small businesses across the UK are adapting to the changing environment.
Profit slows as costs rise
Small business profits in the UK increased by 7.3 per cent year over year in the last quarter of 2024 – down from 8.2 per cent in the previous quarter, and 8.6 per cent in the second quarter.
The report highlighted that productivity has also declined by just under one per cent (0.9 per cent) year over year.
These various declines mirror the effects of inflation, supply chain issues and tightening consumer demand.
Still, rising costs remain a key concern.
Notably, increases in national insurance contributions and changes in the national living wage are expected to place further strain on small business margins.
These issues compound prior existing challenges like high energy costs, rent increases and borrowing expenses, following successive hikes in interest rates.
A focus on financial stability
As a result, small businesses are taking a strategic, yet cautious approach to their finances.
Sage’s report found that over the past year, debt levels have dipped by just under ten per cent (9.7 per cent), as businesses tried to reduce their reliance on borrowing.
Meanwhile, cash reserves went up by 3.2 per cent in the same time frame, reflecting a push for liquidity.
Small businesses seem to be practising financial discipline, suggesting that while expansion and investment may slow in the short term, they are maintaining stability and focusing on long term resilience.
Revenue growth
Despite various pressures, small businesses seemed to show adaptability, revealed the report.
Operating costs saw a 0.4 per cent decline, proving a focus on efficiency.
Meanwhile, real revenues rose by 2.5 per cent. This marked the third consecutive quarter of growth.
While economic headwinds persist, small businesses are finding ways to maintain growth momentum and streamline operations.
Yet, sustaining this trend will require ongoing policy support and business friendly initiatives.
With cost increases on the horizon, small businesses will need to maintain a cautious approach to financial management.
Sage chief executive Steve Hare said: “Small and mid-size businesses, the backbone of the UK economy, are proving their resilience.”
“While they face a cost-heavy few months ahead, their ability to manage finances and drive revenue growth is inspiring. Given the current economic landscape, advocating for policies that support growth is more important than ever.”