Eight in 10 small businesses taking action to strengthen for the year ahead
Tuesday 6th December 2022
- Eight in 10 small businesses taking action to strengthen their business for the year ahead
- Increased focus on reducing fixed costs, budget planning and streamlining back office
- Fall in proportion actively spending to expand businesses
- Manufacturing sector most likely to reduce spend and control costs
With the Office for Budget Responsibility forecasting that the UK economy will be in recession until the third quarter of 2023[1], new research from Novuna Business Finance has found that the prospect of stormy seas ahead in the coming year is prompting eight in 10 small businesses to take fortifying action.
Interestingly, tracking responses of over 1,200 small business owners and senior decision-makers across their country every year since 2019, the research found that not only has this proportion taking actions to strengthen their business increased this winter (+4% year on year), but the measures being taken have become increasingly defensive, contrasting significantly with the more confident, spend-related actions in previous years.
Focus on cost reduction
Looking at cost reduction steps, the results showed that the proportion of businesses focused on reducing fixed costs reached a four-year high, with just over a quarter (26%) looking to action this. This was an increase of 9% year-on-year, and +7% compared with pre-pandemic levels. Similar increases were seen this year in the proportion looking at budget planning (17%, up from 11% in both 2021 and 2019), and the proportion looking for back-office efficiencies/streamlining (10% up from 6% in both 2021 and 2019).
Spend activities take a back seat
Meanwhile, looking at measures that involved active spending, the picture appeared quite different to both last year and in pre-pandemic times. While taking efforts to increase new business and sales remained the most common measure been taken to bolster these enterprises, the proportion looking to do this (29%) was down 3% on last year and -9% on pre-pandemic levels. Similarly, the proportion looking to offer new service lines and products fell to 18% (down 4% year-on-year and -6% lower than 2019).
The proportions also fell when it came to investing more money in marketing (12% -1% on 2021, and -4% on 2019), increasing advertising spend (12%, -1% on 2021 and -5% on 2019), and improving the digital capabilities of the business (8%, flat on 2021 but -3% lower than in 2019). In addition, the proportion looking to build up their financial reserves was at a four-year low of 17%.
Precautionary measures most likely in manufacturing sector
In the manufacturing sector in particular, some of the differences became more pronounced still, with large swings in the proportions prioritising cost-cutting instead of active investment.
Here, the proportion of businesses looking to increase new business and sales fell 12% year-on-year to 30%, and -28% since pre-pandemic levels. The proportion looking to increase advertising spend levels dropped to 10% (-3% on 2021, and -16% on 2019), while those increasing marketing efforts fell to 16% (-1% on 2021, and -5% on 2019). Those investing to improve the digital capabilities of the business also fell to 5% (-1% on 2021, and -6% on 2019).
Meanwhile there were increases in the proportion looking to reduce fixed costs (+5% year on year; +8% since 2019), review business budgeting (+5% and +8%), or review efficiencies in their back office (+4% and +2%).
[1] https://obr.uk/overview-of-the-november-2022-economic-and-fiscal-outlook/
Rising inflation, record-high energy costs, and a sustained and prolonged period of uncertainty is contributing to unprecedented levels of pressure for small business owners. Many are currently taking hits to buffer customers and clients, absorbing increased production and energy costs in the hope price rises will settle at some point. Understandably, within this context, the desire by business owners to strengthen their businesses will increase. What is interesting is the impact of not just this period, but the culmination of the last four to five years, is prompting a switch to the back foot comparatively with the outlook pre-pandemic.
For every small business in the next 18-24 months there will be extreme challenges that will require difficult and important decisions to be made by their leaders. It has never been more important to have a plan that can chart a course through the storm, and well beyond, to inform immediate decisions as they arise. At Novuna Business Finance, we work with small business leaders to help them achieve growth and plan with a long-term vision.
Jo Morris
Head of Insight
Novuna Business Finance
Actions small businesses are taking to strengthen their businesses in the coming year
| Q4'19 | Q4'21 | Q4'22 | YOY (+/-) | Pre-pandemic (+/-) |
Increasing new business income/ sales | 38% | 30% | 29% | -1% | -9% |
Reducing fixed costs | 20% | 18% | 26% | +9% | +7% |
Encouraging staff to attend training courses/ E-learning | 10% | 7% | 6% | -1% | -4% |
Planning ahead with business budgeting | 15% | 11% | 17% | +6% | +2% |
Expanding into new geographical markets | 10% | 8% | 7% | -1% | -2% |
Diversifying the business, offering new service lines/ products | 24% | 15% | 18% | +3% | -6% |
Investing more time/ money to improve the digital the capabilities of the business | 11% | 7% | 8% | 0% | -3% |
Hiring young people that we can train and develop | 11% | 9% | 7% | -2% | -4% |
Streamlining our back office | 7% | 4% | 7% | +3% | 0% |
Reviewing and looking for efficiencies in our back office (e.g. administration staff, IT staff etc.) | 10% | 6% | 10% | +4% | 0% |
Advertising online to increase awareness or sales | 17% | 13% | 12% | -1% | -5% |
Implementing new digital apps and software | 9% | 5% | 6% | 1% | -2% |
Invest more money in marketing the business to raise awareness of our brand and services | 16% | 13% | 12% | -1% | -4% |
Making senior hires, bringing in people with specialist skills/ experience | 6% | 9% | 5% | -4% | 0% |
Building up financial reserves | 21% | 18% | 17% | -1% | -3% |
Actively reaching out for professional/ finance advice | 3% | 3% | 4% | +1% | +1% |
Sharing the overall business plan with the broader team so, we are all working towards the same goal | 7% | 6% | 7% | +1% | 0% |
Spending time investing in the people that already work at the company | 15% | 12% | 11% | -1% | -4% |
Adapting our financial forecasts to allow for seasonal highs and lows | 5% | 3% | 4% | +1% | -1% |
Having more contingency plans in the event of prolonged market uncertainty | 11% | 9% | 11% | +2% | -1% |
Other | 5% | 6% | 3% | -3% | -1% |
Don't know | 4% | 6% | 6% | 0% | +2% |
Not applicable - My business is not planning to prioritise anything in particular to make our business stronger | 19% | 25% | 21% |
Note to editors
The research was conducted by YouGov among a representative sample of around 1,200 small business decision makers, spanning all key industry sectors, during:
- 7th - 17th October 2019
- 21st September - 7th October 2021
- 20th September - 4th October 2022