FSB study suggests near 15% of small businesses may close
A new quarterly assessment made by the Federation of Small Business has calculated that as many as 14.7% of small businesses will either downsize or close in the next 12 months.
With the economy now hitting reverse gear and little sign of Government intervention in the energy crisis, small business owners will be carefully assessing the impact of rising overheads on profitability. 53.4% are negative on growth prospects as a result, versus 46.6% who expect some growth.
The picture fluctuates by business type with the mood more upbeat in the information and communications sectors, where 62% of businesses expect some growth. Meanwhile, wholesale and retail business are more downbeat, with marginally over third (33.9%) expecting growth.
The FSB National Chair Martin McTague said: “We don’t have the luxury to wait until the winter, and inaction from our new Prime Minister could spell the end for many businesses. Plans for urgent intervention must be finalised and ready to go on Day 1, for whoever wins the leadership contest on September 5th.
“Imagine a small retailer has to come up with another £22,000 a year to keep the lights on when they are already wrestling with the jobs tax hike, rampant inflation and supply chain disruptions. And how is a fish and chip shop supposed to cope with a £52,000 increase in utility costs, at the same time as their customers find themselves with less disposable income because of their own rising energy bills? Not to mention the independent laundrette considering calling time on the decades-long business after being told they need to pay £8,800 more a year for gas and electricity.”
The closure rate had, on the back of a winding down of pandemic measures and increased desire by the public to spend, dipped to a seven year low recently, making the sudden hikes in costs all the more uncomfortable when a recovery appeared somewhat underway.
The fuel for the quickly souring sentiment is some 89% of businesses stating that their costs are higher than one year ago. As part of this 63.5% blamed utilities and 64.2% fuel costs. It is, in part, down to this latter reason that the cargo bike market appears to be a standout in the marketplace as businesses look closely at the costs associated with the urban transportation of goods. Last year just 27.6% mentioned utilities as a key headwind and 25.9% fuel costs..
Despite a low unemployment rate at present, most recently benchmarked as 3.8%, recruitment remains a headache for many businesses. ONS data suggested there were 1.3 million vacancies in Q2 of 2022, but of those businesses optimistic about growth 33.9% said finding the right skilled staff was a barrier to progress.
Q2 did see more small businesses state they had reduced staff numbers, the first time that had happened since Q1 2021. 14.4% reduced staff numbers versus 10.8% that grew the payroll over the prior quarter.
In its steepest downturn since the first lockdowns in 2020, the August UK Manufacturing PMI announced yesterday as having hit 47.3. Under 50 equates to a contraction.
The FSB is now calling on the Government to reverse recent National Insurance hikes, drop VAT rates on energy bills, plus overhaul the business rates system to increase the rateable value threshold for relief to £25,000. There is also a call for corporate boards to become directly accountable for late payments to suppliers, something that has caused the demise of plenty of small businesses over the years.
Martin McTague, FSB’s National Chair, said: “The fall in GDP in the second quarter and the record-high inflation figures show the scale of what small businesses are up against, with our second quarter Small Business Index uncovering warning signs in many different indicators, from overall confidence to staff numbers and growth aspirations.
“Longer-term, those hopeful of solving the UK’s long-running productivity puzzle will not find much cause for cheer in this report, with small businesses held back from growing and investing by numerous factors.
“A healthy business ecosystem requires businesses of all sizes to be able to realise their ambitions – from one-person start-ups with a great idea, through the small and medium-sized businesses which form the bedrock of the economy, right up to the largest companies, who rely on countless smaller suppliers and service providers.
“With our research indicating that smaller firms’ intentions to grow are muted at best, with businesses planning to grow outnumbered by those expecting to stay the same size, shrink, or even close their business, a key driver of economic recovery is threatened.
“Inflation is higher than at any point for the last four decades, and is also acting as an inhibitor to investment – machinery, parts, software, tools, rents, and employment and operating costs in general are all increasing in price more rapidly than small businesses can run to keep up. It’s a toxic recipe for the future health of the economy.
“If the next Government wants to be able to level up the country, small business considerations must be at the heart of its thinking. Our members are looking for concrete help.”
