Azets, the UK’s largest regional accountancy and specialist business advisor to SMEs, has published its latest Azets SME Barometer, revealing ambitious growth plans among UK SMEs despite a significant drop in optimism around the economic outlook.

The second wave of the Azets SME Barometer, first launched in August 2021, surveyed 1,093 SMEs from all sectors in the UK and Nordics, and reveals only half (51%) of all SMEs are optimistic about the economic outlook, down from more than two-thirds (68%) last summer. UK SMEs are the least positive, with less than half (45%) reporting optimism and 40% expecting the economic climate to worsen.

Despite this, 62% of all SMEs surveyed expect their turnover to increase in the next 12 months, while 53% forecast improved profit.

Key findings:

• 51% of SMEs are optimistic about the economic outlook
• 62% of SMEs expect their turnover to increase in the next 12 months
• Cost inflation is the biggest day-to-day challenge for SMEs
• Two-thirds (64%) of SMEs are unable to recruit people with the right skills
• 61% of SMEs say digitalisation, ranked the second biggest opportunity, is key to business efficiency
• 45% of SMEs do not have the skills or competencies to address Environmental, Social and Governance (ESG) issues
• 71% of SMEs are not currently focused on reducing their carbon footprint
• 16% of UK SMEs have experienced a cyber-attack or serious data breach

Covid still ranks as the biggest threat to UK SMEs, whilst business models and digitalisation lead the growth opportunities. Over half of all SMEs (54%) say they will increase digitalisation in the year ahead, with cyber-security, data analytics, remote working, e-commerce, and process automation ranking as top priorities.

Cyber-security is of particular importance to UK SMEs, 16% of which admitted to experiencing a cyber-attack or serious data breach.

36% of SMEs surveyed said cost inflation remains a challenge in January 2022. This is now likely to be much higher following Russia’s invasion of Ukraine in February 2022 and the subsequent long-term impacts of Western sanctions, higher global prices for commodities and further supply chain disruptions.

Employee wellbeing and recruitment are also key challenges, as almost two-thirds (64%) of all SMEs report a struggle in recruiting people with the right skills.

Addressing these challenges could have reduced capacity for focus on ESG issues, with 71% of SMEs in the UK and Nordics not currently focused on reducing carbon emissions and 85% not currently measuring the carbon footprint of their business. Expertise, time, cost, and supply chain due diligence are among the biggest challenges in relation to ESG.

Paul Clifford, Regional CEO at Azets, said: “The Covid crisis has been particularly tough on SMEs, not only because they are more prevalent in the worst-hit sectors but also because they have fewer buffers – including access to liquidity – than bigger organisations. It is therefore no surprise optimism around the economic outlook has reduced, impacted by the potential for new Covid variants and the global cost of living crisis.

“The findings of this Azets SME Barometer were collated just before the conflict in Ukraine began. Our first thoughts are around the enormous humanitarian tragedy taking place. Secondly, the impact on the global economy and the SME sector will be immense when we start to analyse the effect of sanctions, price fluctuations on commodities and disruption to the global supply chain.

“Despite this new uncertainty, the issues and priorities for SMEs uncovered in the Azets SME Barometer are still hugely relevant, from dealing with cost inflation and skills shortages, to cyber-security threats, tackling ESG commitments, and general unpredictability. SMEs remain committed to pivoting their business models and embracing digitalisation as the biggest opportunities to fuel growth. It is this flexibility and agility that will be key for SMEs as they continue to build their resilience.”