What will 2023 bring for the UK’s 5.5 million SMEs?

It can’t be denied that SMEs have undergone a tumultuous few years due to the pandemic and ongoing macro-economic challenges. There is much speculation as to what the year ahead will bring for the companies which comprise 99% of the UK’s business population.

Firstly, I believe supply chains are going to get shorter. As we’ve already witnessed this year, the aftershocks of the pandemic have led to widespread supply chain simplification which I predict will become more pronounced in 2023. As businesses make a desperate grab for margin to offset inflation, they’ll increasingly be looking to cut out the middleman by approaching suppliers directly. Moreover, the ongoing supply chain difficulties have proven that nearshoring of product is a safe bet and will help mitigate issues with shipping delays or geopolitical tensions going forward. This trend has been initiated by some larger companies this year and I expect to see this replicated by SMEs.

Secondly, start-ups may require a fundraising ‘Plan B’ as, after a strong decade prior to the pandemic, we could now see venture capital firms wary of investing in new companies, or existing portfolio companies, until the economy stabilises. This could particularly adversely affect tech companies, where regular investment is required, to invest in new technology and to hire the best available employee talent. Therefore, start-ups will need a compelling proposition to squeeze cash out of investors and will need to plan in advance, more than ever.

HMRC could continue to cause problems for SMEs, as we have observed in recent months. 2022 saw a marked increase in winding up petitions issued by HMRC, as the Treasury got tough with non-paying businesses after a long period of leniency and forbearance on Covid loans. I think this will continue….and suppliers will doubtless be using winding up petitions as a tool to combat stubborn non-payments from clients too. Therefore, businesses must make sure that they’re up to date on repayment schedules and seek advice promptly if final demands are piling up.

Unfortunately, this year, the Christmas buzz could be more of a whimper as with the cost-of-living squeeze on and strikes and snow making a night on the town more challenging, the traditional Christmas flurry could be very muted. In fact, the continued pincer movement from inflation, interest rates and weak consumer confidence will unfortunately make for many more insolvencies in the leisure sectors. The festive period is a crucial time for restaurants and pubs, with happy customers looking to enjoy Christmas and New Year parties, therefore a stunting of demand at this time of year could be extremely detrimental to SMEs in the sector.

However, all is not lost, and that brings me to my final point: Never forget that consumers first and foremost are human beings. The multiple crises caused by Covid aftershocks, the energy squeeze, the cost of living and industrial actions have dominated the news cycles for most of 2022 and at some point, people get fed up with doom and gloom and decide to live a little. The UK economy, especially in the SME sector, always has the potential to surprise on the upside, so I wouldn’t go writing 2023 off just yet. Better times could be just around the corner!