We know the contribution the 5.6 million SMEs in the UK make to the economy. They employ 60 per cent of the UK’s private-sector workforce and contribute half of British GDP.
But they also face significant challenges, including the continuing issue of late payments from larger companies, high business rates and the challenge of moving to Making Tax Digital, as well as the continuing uncertainty surrounding the UK’s future relationship with Europe.
New research from the OECD (Organisation for Economic Co-operation and Development) suggests that while SMEs have been “a significant driver of employment growth in recent years”, improvements could be made around productivity.
This is echoed by the Office of National Statistics, which found that productivity growth in the UK decreased for the third consecutive quarter between January and March this year.
Some of the factors behind these issues – such as entrepreneurship policies, access to resources and general business conditions – are hard to control, but there are several areas SMEs can focus on to improve their chances of prospering in the future.
Embrace digital transformation
There is a clear need for SMEs to ramp up investment in digital technology, which can improve productivity and innovation.
Indeed, the top 20 per cent highest-growth SMEs are more likely to consider themselves as tech-driven, with 71 per cent of that group finding technology to be a key driver for their growth, according to research by Yorkshire Bank.
The research also suggests technology may be a major factor for SMEs when trying to secure funding, with 36 per cent of tech-led businesses finding it easy to access funding for growth, compared to 19 per cent of other businesses.
Another tech-related area that small businesses should address is cybersecurity.
Cybercriminals are increasingly targeting small businesses, with two-thirds of companies with 10–49 employees suffering some form of cyberattack in the past year. On average, a cyberattack costs £65,000, with most of the expense going towards salvaging damaged assets, paying financial penalties and bearing the brunt of business downtime, according to research by UK ISP Beaming.
Many SMEs are already taking action, with small businesses looking to increase their security budgets significantly this year.
The government is also helping small businesses to improve their cybersecurity, with a digital toolkit, dubbed ‘Exercise in a Box’, to test their capabilities and boost their resilience to cyberattack. The online tool is designed by the National Cyber Security Centre (NCSC) and is free to use.
Take a proactive approach to skills
A lack of skills is a major issue for small businesses.
According to the OECD, a quarter of SMEs across Europe lack skilled staff or experienced managers, exacerbated by the fact that less than a quarter of small firms in most OECD countries provided ICT training in 2018.
There is clearly an opportunity for SMEs to invest in more training to improve the skills they have in-house, both in terms of younger staff who are early in their careers, as well as older employees who may be required to perform new types of work as the company evolves.
Another way small businesses can retain and attract the right talent is through the benefits they offer. This is reflected by the fact that SME bosses are planning to increase the benefits they offer staff in addition to pensions over the next two years, according to new research from MetLife UK.
Ensure the leadership team is right
Small businesses should also look at their leadership team to ensure that it has the right mix of personalities and experience to help the business tackle the challenges they face.
Recent research by Hitachi Capital Finance found that a lack of strong leadership, primarily caused by a ‘soft skills gap’, is preventing SMEs from tackling the numerous challenges they face. Indeed, a third of business leaders cite soft skills, including emotional intelligence, communication and collaboration, as the most crucial requirement for leadership roles.