Change is Inevitable in the Wake of Brexit – Can SMEs Cope?
This post was originally published on the Chartered Institute of Credit Management’s blog.
Change is an integral part of the business landscape, and it always has been.
But today’s level of change is completely unprecedented. It seems to come from all quarters – economic, political, and social – largely due to the uncertainty surrounding Britain’s exit from the European Union, the exact details of which are still yet to be decided.
It’s the pervasive nature of change which is new. And it seems to be causing an issue for the UK’s small businesses, with 40% reporting Brexit has significantly slowed their growth, according to our report ‘UK SMEs: Brexit and Beyond’.
But every business responds to change differently. In this blog post, we’re going to explore the key ways small and medium sized enterprises (SMEs) are being affected by these changing times.
Understanding the unknown
64% of SMEs told us the outcome of Brexit is the most important factor influencing their success. As long as the result of Brexit remains unclear, the future of the majority of small businesses will hang in the balance.
But even though the majority of SMEs see the importance of Brexit, less than a third claim to understand what it will mean for them. According to our report, 31% are struggling to evaluate Brexit’s impact on their business. And as long as businesses can’t identify what Brexit’s effect will be, they can’t make any plans.
In fact, business’ ability to plan has been seriously impeded by Brexit. 37% of SMEs have cancelled or postponed plans until the situation becomes more certain and the currency stops fluctuating. But now is not the time for SMEs to neglect their growth plans: in a world moving so fast, it’s crucial to strategise for the years ahead.
Interestingly, it seems that bigger SMEs will be the most affected by Brexit. The majority (55%) of businesses who are turning over £100 million - £499.99 million have experienced a significant Brexit impact, whereas only 14% with a turnover up to £100,000 say the same.
The struggle for talent
SMEs face other challenges alongside the ongoing difficulty of Brexit. Three quarters (75%) see talent as the biggest obstacle to their future success. In fact, out of five sectors – including retail, health, manufacturing, education and professional services – four identify recruitment as the factor that most significantly impacts their growth.
This is unsurprising, given that the UK is suffering from a digital skills gap. There aren’t enough workers with the right qualifications or experience to fill all the jobs that require an aspect of technological know-how. By 2020, the UK will have 800,000 positions left unfilled as ‘digital vacancies’.
Of course, Brexit isn’t making this problem any better. It’s unclear whether leaving the EU will make it more difficult to hire employees from abroad, which will only worsen the skills shortage.
Responding to change
In today’s climate of total change, it seems that more traditional industries are most at risk. Between the end of 2017 and the third quarter of 2018, 21% of small businesses in retail failed, alongside 13% of manufacturing SMEs.
In fact, the manufacturing industry does not seem to be a healthy place for SMEs at the moment. Our report observes a 10% decrease in sales of small manufacturing companies from 2017 – 2018.
But it’s not all doom and gloom. There are clear signs that some industries are reacting really well to the climate of change. SMEs in the professional services sector, for instance, saw an increase in sales of 40% in the last year. And small businesses in retail – 21% of which failed – also experienced a substantial sales uplift of 27%.
This just goes to show that Brexit will not impact all SMEs consistently. Change will shape every small business individually – for bad or good.
Seizing hold of a changing world
Change is on the horizon, and it’s not going to go away.
While this does present a real challenge to small businesses, it also offers an opportunity.
SMEs are incredibly resilient and are arguably best placed to take advantage of a fast-moving world. Their small size makes them agile and quick to respond, meaning they can take new ideas to market more quickly – beating their larger enterprise competition.
In the years after Brexit, change could be a friend to SMEs. But of course, there are no guarantees.
Download the report ‘UK SMEs: Brexit and Beyond’ here.