Consumer confidence now primary concern for small businesses as rising cost worries ease
Tuesday 20th June 2023
Customer spend has become the number one concern for small businesses this quarter, overtaking concerns about rising energy and supplier costs, according to new research by Novuna Business Finance. Meanwhile, the proportion of small businesses that say they are being held back by the cost of living crisis remains on a par with six months ago, with 87% still saying the challenges present a threat to their business.
At a time when further interest rate increases from the Bank of England could dampen the recovery of small businesses, while still grappling with high costs of energy, raw materials and rising staff wage bills, the results give a sense as to the order of priority business leaders are addressing the challenges at foot.
The survey taken from Novuna’s Business Barometer polled 1,088 owners and senior decision makers of small businesses about their concerns around the cost of living crisis, tracking responses over a six-month period.
Consumer confidence now the dominant priority
Topping the list of concerns, over a third of businesses (35%) were anxious about low customer spend levels, with an additional 27% citing less customer volume. Of the sectors most troubled about customer spend were those in the retail (62%) and hospitality (56%) sectors, and seasonal businesses (55%).
Linked with this was the inability to pass on high costs to customers – a factor that 32% of businesses were still grappling with (+3% points compared with six months ago).
The threat of rising costs beginning to settle
Compared with the responses in Q4’22, the major difference in concerns were to do with rising energy prices and supplier costs. While a third (33%) of business leaders cited this as a major worry, this was down from almost 47% six months previously. Similarly, while 23% said they were struggling with transport and travel costs, this was down from 33% over the same period.
That said, for businesses in the manufacturing (49%), hospitality (62%) and agriculture sector (46%), energy prices remained their top concern.
Similarly, costs from suppliers remained a major concern this quarter (33%), particularly for those in the manufacturing (47%) and agriculture (44%) sectors. Again though, the proportion citing this was -11% points down on Q4’22 overall.
Political and economic confidence improving
There were signs in the results that small business leaders were beginning to regain their confidence in the Government and economy, with far fewer concerns this quarter than there were in a chaotic Q4’22, which was dominated by the fall out of the Truss/Kwarteng administration.
Concerns significantly eased about the weak pound (9% down from 24%), political leadership (14% down from 24%), and the volatility of cash flow (19%, down from 26%). However, there was a small increase in the proportion of businesses concerned about banks being restrictive on lending (from 6% to 8%), particularly among businesses that were contracting (10%) or struggling to survive (12%).
Signs suggest that small businesses are beginning to adjust to the torrent of challenges that have come their way in the past three years, but this does not mean that these dark clouds have in any way cleared. Energy costs are not as volatile as they once were, but the issue of high costs remains. The economic environment remains extremely challenging, and understandably this is having a damaging effect on consumer confidence. That business confidence remains stable, with previous research showing almost a third of businesses predicting growth in the next three months and over half anticipating operations staying stable, is testament to the ability of small businesses to stay nimble and agile even in these circumstances.
Navigating through these choppy waters depends on being able to keep an eye on the longer term horizon – be that in one, two, five or 10 years. Novuna Business Finance is committed to helping small businesses leaders through the good times and bad, providing them with the support they need to reach their full potential over a sustained period. We understand the growth cycles that small businesses go through and we have both the products and toolkits to support their growth ambitions
Jo Morris
Head of Insight
Novuna Business Finance
Additional tables
Aspects of the increase in cost of living that threatens small businesses most
Q4 2022 | Q2 2023 | +/- | |
Customers spending less money with us | 41% | 35% | -6% |
Being hit by rising costs/charges from my suppliers | 44% | 33% | -11% |
Rising energy costs - in terms of running the business | 47% | 33% | -14% |
Not being able to pass on inflationary prices increases to my customers /clients | 29% | 32% | 3% |
Less customer volume | 33% | 27% | -6% |
Rising energy costs - impact on transport & travel | 33% | 23% | -10% |
Not being able to pay staff more in keeping with cost of living costs | 24% | 20% | -4% |
Cash flow becoming more volatile | 26% | 19% | -7% |
Rising fixed costs - rents/ business rates | 19% | 18% | -1% |
Lack of government support | 21% | 15% | -6% |
Lack of political leadership | 24% | 14% | -10% |
Rise in late / non payment | 18% | 13% | -5% |
Rising cost of finance with interest rates | 12% | 11% | -1% |
Not being able to hang on to staff | 9% | 10% | 1% |
Weak pound / exchange rates | 24% | 9% | -15% |
The prospect of a quieter period for Christmas trading this year | 15% | 6% | -9% |
Banks being restrictive on lending money | 8% | 6% | -2% |
Diverting marketing/investment spend to just afloat | 4% | 4% | 0% |
Don't know | 2% | 3% | 1% |
Other | 2% | 2% | 0% |
Not applicable - the increase in cost of living does not threaten my business in any way | 13% | 13% | 0% |
Note to editors
The research was conducted by YouGov among a representative sample of 1,088 small business decision makers between 27 March and 10 April 2023, spanning all key industry sectors.