Three quarters of SMEs expect to return to pre-pandemic levels of profitability

Research by Sage shows that more than three-quarters of SMEs expect to return to pre-pandemic levels of profitability in the next 12 months.

The poll by the accounting and payroll technology provider also found that two in five smaller businesses expected to hire more people in 2022, with half of those planning to increase their workforce by more than 20%.

Confidence levels are high amongst small and mid-sized businesses (SMBs) globally, with 79% in the UK expecting to return to pre-pandemic profitability in the next 12 months vs 81% globally, and 43% expecting to hire more people in 2022

But challenges remain – increasing costs are the major concern for more than 60 million businesses around the world, and nearly a quarter of UK SMBs

Over one-third of UK SMBs still not operating normally due to pandemic, with around 10% (650,000 businesses) at urgent risk of going out of business, putting 1.1 million jobs in danger

The research found that rising costs and concerns about inflation are keeping UK businesses up at night with nearly a quarter (23%) saying increases in costs (e.g., inflation, wage and rent increases) pose the biggest risk to their business looking ahead to the next 12 months. The same number cite this as the biggest negative impact on their businesses today while 43% anticipate cost pressure will increase in the next twelve months. One third are concerned about reduced consumer spending, with 20% saying reduced customer demand is one of their biggest concerns today

However, UK business confidence remains strong, despite – and even because of – ongoing pandemic pressures. Most UK businesses feel more resilient and better prepared to overcome major barriers now than before the pandemic because of the adaptations they have made over the period. 68% of business decision-makers feel confident their business will be successful 12 months from now, in line with SMBs globally (69%). This optimism is starting to filter through into profitability, with 79% of UK SMBs expecting to be at least somewhat back to pre-pandemic levels of profitability. As many as 43% expect an increase in revenue in the next six months – and 69% of them expect their revenue to increase by up to 30%. 41% expect their customer base to grow in the next 12 months

UK SMBs expect to increase hiring and remain optimistic about staffing over the next twelve months. 43% of businesses surveyed expect to hire more people in 2022, and around half of them (48%) expect their workforce to increase by up to 20%, leading to the creation of more than 321,000 jobs in the UK over this period alone. 30% of UK SMBs saw their workforce shrink in the previous year but 66% are confident that they will be able to meet their staffing needs over the next 12 months

Government and financial support are crucial to business survival, with 43% of UK SMBs relying on external financial support to cope over the last 12 months, and one in five highlighting a lack of government support as the key challenge over the last twelve months. Government support is identified as the single most important resource to contribute to SMB growth over next 12 months, although 30% fear that access to government support will worsen over that time. Financing, including bank loans and grants (20%) and better management of cash flow (22%) also noted as key factors to success.

Investing in technology proved crucial during the pandemic as a majority of businesses relied on technology to survive. 56% of businesses became more reliant on technology as a result of the pandemic, while around a fifth of SMBs adopted new technology to operate better and / or to sell more to customers during the pandemic. This is set to increase in the future, with 44% expecting to invest more in technology over the next 12 months, and a third seeing investing in technology as key to becoming more profitable and to saving valuable time.

The poll was conducted before Russia’s invasion of Ukraine, saw nearly a quarter of respondents flag increasing costs and inflation as their most pressing issue, with 43% saying they expect cost pressures to increase in the next 12 months.

Sage Group CEO Steve Hare said “SMBs have demonstrated incredible resilience throughout the pandemic. But their confidence cannot be mistaken for invincibility. The government must do more to safeguard their prosperity against a backdrop of continued uncertainty and rising costs – or we risk forcing them to choose between protecting people or protecting profits. Overlooking smaller businesses endangers the recovery, thousands of UK jobs and the success of the government’s levelling agenda; we all have a role to play in futureproofing their success.”