Government red tape and rising costs threaten UK SME growth
New regulations and government policies are hindering growth in the UK SME sector, according to new research from accounting software company FreeAgent.
The survey, which was commissioned by FreeAgent to analyse the experiences of growing SMEs in the UK, found that almost a fifth (18%) of respondents say dealing with government policies and regulations is hindering their ability to grow – highlighting how bureaucratic barriers are compounding the challenges faced by businesses in the current uncertain economic climate.
Despite government pledges to cut red tape in order to boost economic growth, SMEs say they are still facing difficulties when it comes to expanding their businesses – with half (50%) of respondents called out business performance reporting as a key challenge they have encountered as they strive for growth, while a quarter (26%) noted compliance was an ongoing barrier. In addition, 46% said they were not confident that there will be more opportunities for business growth under the current government.
Cashflow and funding pressures at the forefront
Other SME issues highlighted by the survey included the pressure of staying on top of cashflow and worries over future funding, while 28% of respondents said they were seeking better management strategies. In addition, nearly a third (31%) said paying employees is a key challenge, while over a quarter (27%) said they were increasingly worried about rising costs. As a result, an overwhelming 96% of businesses have had to adjust their financial management practices to keep pace with growth demands.
With unpredictable income and rising expenses putting significant strain on day-to-day operations and future plans, the survey also uncovered that over half (52%) of businesses say they have required more funding as they scale. Many SMEs also said they planned further investments to grow, such as taking on new staff and updating legacy systems (31%), and improving profitability (31%) – showing that many are having to adapt to meet changing market conditions.
Adapting to survive: The need for business support
FreeAgent’s research revealed that over a third (34%) of UK SMEs are facing a saturated market and increasing competition as they expand. As a result, 28% said they have a plan to increase their business services while almost a quarter (24%) said they were planning to completely pivot their business offering in order to adapt and survive.
With business leaders facing increasing pressure, it’s crucial that they have access to key resources and ongoing support to guide them. While many are continuing to turn to industry groups (17%) and their own network (17%) for this support, almost as many rely on social media (12%) compared to those who rely on government resources (14%) or external consulting services (15%). This suggests that more expertise is required from the government and within the SME industry itself, to ensure business owners can access accurate, reliable guidance rather than relying on potentially inconsistent advice from social media.
Roan Lavery, CEO and co-founder of FreeAgent, said, “SMEs are the backbone of the UK economy, yet our research shows they continue to battle significant barriers – from government red tape to mounting financial pressures – that threaten their ability to grow and thrive.
“At a time of economic uncertainty and fierce competition, it’s more important than ever for the government, industry, and the wider business community to work together to cut unnecessary bureaucracy and provide SMEs with the practical, reliable support they need. By removing roadblocks and ensuring access to clear guidance and resources, we can help unlock the full potential of UK businesses and drive the economy forward.”