Chirag Shah, CEO and Founder of Nucleus Commercial Finance

According to the CBI’s latest SME Trends Survey*, business optimism within the UK manufacturing sector has now fallen for four consecutive quarters. Output and the volume of new orders has hit record lows, as firms struggle to maintain high levels of productivity amid ongoing uncertainty and rising running costs. 

This is yet another stark reminder of the current status of the UK manufacturing sector; adding to the already negative outlook for UK SMEs across the board as business owners continue to battle against a myriad of cost challenges. 

The ramifications of Brexit also continue to impact the sector, with SMEs facing additional courier fees, duties on goods originating outside the UK, administration of VAT and other Brexit-related costs. Even now, calculating, collecting, and paying the correct amount of VAT due on sales remains a key area of confusion for SMEs. 

In addition, recent reports prove how the innovation efforts of SMEs have been significantly constrained because of Brexit-related changes to legislation. New Brexit safety certification rules mean certain manufacturers will need to pass one set of tests for the EU and another for the UK, creating extra layers of red tape and delaying the time taken for products to be deemed safe for sale and production. On top of all of this is the general uncertainty and lack of clarity around the future of the relationship.  

This is already having a knock-on effect on how global manufacturers now perceive the UK as an opportunity for business, with many regarding it as too difficult. This has resulted in products being withdrawn, significantly impacting the UK’s ability to deliver completed projects and improve on the failing economy.

It’s clear that a lot needs addressing to better support the SME sector, and fast. 

But looking to government support is less than promising. Despite the new Chancellor Jeremy Hunt reconfirming the scrapping of the planned income tax and National Insurance reductions; substantive reassurance is still lacking. Even with the introduction of the Energy Bill Relief Scheme (EBRS), which will provide businesses with support to tackle rising energy bills from the start of October until April 2023; juggling high running costs along with muted demand feels utterly unachievable for many. After stand-in Chancellor Kwasi Kwarteng’s stint in the Treasury our research found 38%1 of UK SMEs believed that the government’s announced interventions would have no impact on supporting their business. In fact, 19% actually believed these plans would do nothing but have a negative impact. 

While the Autumn statement had the potential to be a real turning point for the business outlook, the right level of support still needs to be delivered. There remains a real question of whether any additional cost relief is even enough to safeguard all those who are really struggling right now. Only resilient businesses with strong working capital and cash reserves will survive, and following the pandemic, cash resources are already stretched. For those businesses that find themselves in an uncertain financial position, being able to get access to funding is crucial. However, according to our survey, just 38% of SME businesses say they are confident about being able to access affordable finance in the next 12 months should they need it. 

And so, to build towards having more robust cash reserves, reviewing the balance sheet early on and forecasting how much cash is needed to cover all eventualities for the next 3, 6, 12 months is worthwhile. The lending markets are understandably taking a more risk-averse approach to companies with weaker balance sheets, so business owners should take action early and work with advisers who can assist them to strengthen their cash flow situation to ride out this storm. 

 

The chosen funding facilities also need to make sure they have the most competitive terms, and ideally are credible for a government-backed loans for additional support. Business loans, such as those offered by Nucleus Commercial Finance, are available for a variety of business types and needs, as the extra finance can help companies reach new targets, bolster growth, or cover any high business costs. 

While we await the results following the Chancellor’s latest round of government support, there are clearly several key business cost pressure points firms – whatever their size – can address. However, the real long-term solution will only come via continued efforts to raise awareness of the specialist lender support that’s available, as part of a unified effort across fintechs, the wider financial services industry and government to help support UK businesses, which is of paramount importance. 

1 Source: Research conducted by Opinium Research on behalf of Nucleus Commercial Finance between 30 September and 06 October 2022 amongst a sample of 500 Senior decision makers in SME businesses (excluding large businesses). 

2Source: Research carried out between 10th-15th August 2022 among 512 senior decision makers in UK small and medium enterprises.

* Based on the responses of 262 small and medium sized manufacturing firms