Small business confidence drops by 12% but nearly two thirds still expect to grow

Confidence amongst early-stage small firms fell by 12% in the first quarter of the year, according to the latest Enterprise Nation Small Business Barometer.

But despite the challenges of higher energy bills, inflation, war in Ukraine, nearly two-thirds (62%) of founders were still confident their business would grow in 2022 - down from 74% in the final quarter of 2021. Another 28% felt their business would stay at the same level.

However, one in 10 (12%) went as far as to say they would 'make a loss' or the crisis could 'make their business unviable'.

The barometer, which takes a quarterly look at the views and confidence of more than 1,000 small early-stage firms with typically 0-5 employees, found over half (55%) of the businesses surveyed were 'quite confident' or 'very confident' their business would survive in 2022.

More than half (56%) of small firms said business had returned to, or even better than, pre-COVID levels, with those in the North East seeing the most improvement at 74%, showing trade in the region is bouncing back after the pandemic.

Businesses in the fashion industry were the most worried about increased costs - 80% said inflation and the cost-of-living crisis would reduce profitability. The food and drink industry (78%) and those operating in general retail (77%) were also expecting profits to dive. Meanwhile 58% of tech firms shared the same concern.

Emma Jones, CBE, founder of Enterprise Nation, said:

"The small businesses community is bracing itself for a difficult trading environment. They understand they need to prepare for higher costs and for some, lower profits.

"But it's good to see there are still signs of relative optimism. Small businesses have been through a lot. Even those that are in the early stages have already existed through unprecedented times, so they understand that opportunities sometimes spring from adversity.

"Our regional figures show that there's still a massive amount of variation in confidence that needs to be addressed. We have long believed that public money could deliver a better return on investment if applied to the areas that need it most and we look forward to offering insight from the Enterprise Nation platform and future barometers so support gaps can be plugged and the right support directed at the right businesses at the right time."

The most confident region was London, with 72% of firms expecting to grow this year, but the Republic of Ireland wasn't far behind at 68%.

This was followed by the North West (64%), North East (62%), Wales (62%), Northern Ireland and Scotland (61%), Yorkshire & Humber (60%), West Midlands (57%), South West (56%) and the East Midlands and East of England with the lowest growth expectations at 54%.

The impact of rising costs on small businesses

Business owners are already feeling the impact of rising costs. In the second quarter of 2022, they are expecting energy costs to go up by 33%, transport cost by 18%, operational costs (for things such as broadband, phones, insurance etc) by 16% and staff costs by 11%.

That tallies with national figures released last month by the Office for National Statistics which found input producer price inflation had already risen to record levels, at 19%.

Interestingly, a third of firms (34%) said they were likely to take on more staff, while another third (32%) said it was unlikely.

Download the Enterprise Nation Small Business Barometer