WorkLife’s latest Small Business Monitor has found that high inflation is the greatest challenge cited by over the next 12 months.
36% of smaller firms WorkLife engaged with cited inflation as one of the top three challenges facing their business over the next 12 months. Following this were a range of other operational concerns, including supply chain complexities (22%) and rising business rates (22%).
People management issues were also high on the agenda, with looking after employee wellbeing (22%) and sourcing and recruiting quality talent (20%) also being cited as pertinent challenges.
Much further down the list were slowing consumer demand (14%), geopolitical risks (13%), and other financial issues such as getting access to loans or over drafts (12%) and paying back Covid-19 support loans (11%).
34% of SMEs say they will be looking to increase the cost of products and/or services in the face of rising inflation, while a similar number (31%) were exploring cheaper means of sourcing goods and services needed to run the business.
The research found that SMEs’ investment plans could also be hit hard. 18% of respondents said were putting plans to invest in the business on hold due to high inflation, while 13% were scrapping investment plans altogether.
For some employees, redundancies or cuts to working hours could be on the horizon. 10% of firms expected to lay off staff as a result of rising inflation, the same number (10%) said they were looking at reducing hours. Some 7% were looking at reducing salaries and benefits, although 11% of firms are expecting to expand pay and rewards.
Despite the threat of inflation, there is a significant uplift in optimism regarding income when compared with previous waves of the research. 39% of SMEs expect revenue to increase in the next 12 months, compared with just 26% in summer 2021. 31% of firms expect it to reduce, while 25% predict income will remain at the same level.
Niamh McLaughlin, managing director of WorkLife by OpenMoney, said: “While there is clear positivity from SMEs in terms of business income, the outlook remains very unclear two years on from the first UK lockdown. Not only are smaller businesses feeling the effects of rising prices and bills, they are also grappling with issues such as supply chain constraints and labour shortages.
“Particularly for firms being forced to put investment plans on hold, it’s of upmost importance to ensure any available budget is being allocated to the areas that will have the biggest impact on the overall health of the business. How employers help staff manage the impact of inflation on their own finances could well impact their decision to stay and strive to support the company long-term, so a robust pay and benefits strategy is certainly not an area to be overlooked right now.”