Profit expectations in UK for SMEs | More stretching required?

In recent survey findings published by the Federation of Small Businesses (FSB), the majority (64%) of small firms impacted by the National Living Wage (NLW) have stretched to meet the latest rate of £7.50 per hour by taking lower profits.  “FSB has urged the Low Pay Commission to consider whether the Government’s 2020 NLW target may need to be delayed if the economy cannot bear the rapid pace of increases. The NLW is currently projected to rise to £8.75 by 2020. FSB says any risk to the economy should be built into the next NLW increase scheduled for April 2018.”

We’ve discussed how the UK distribution sector (in our FWD distribution blog) will likely be impacted by the NLW.

With these findings and the ONS figures due to Brexit uncertainty, it is clear that further resilience is needed by SMEs in the UK in the short to medium term, but this can be achieved by having a realistic picture of your own business’ health in order to know what to balance and when.

The balancing act on your bottom line

Whilst there is a limit to what can be done in the wider macro-economy, SME’s can put their own controls in place to improve their business health.

One example is improving cash-flow and minimising late payments, in order to push investment back into the business.  “Research conducted by Crossflow Payments and YouGov found that £22.6bn of construction SME annual turnover is tied up in late payments… Late payment is damaging the growth prospects of these firms. One in five (21 per cent) said that they would invest in sales and marketing if payment terms improved, while an additional fifth (21 per cent) would hire extra staff.”

In a recent UK SME Confidence Index, the mood for business leaders seems to be very much about “Brexit-proofing” their firms to cope with the uncertainty ahead, leading to a positive outlook – “70% are confident that sales will increase over the next 12 months alongside profitability (52%).”  Within this piece of research, the answer lies in finding and keeping the right talent.

So, key to protecting your margins is to identify and resolve any operational inefficiencies, boost productivity with a lean approach, highlight cost savings that won’t harm your customer and enhance your employee experience.

Profit expectations in UK for SME sector are in our own hands if best practice is followed with an eye on the long term

Equipping yourself with the right tools in business intelligence and business management software will support your approach in any of the areas we’ve highlighted.