Small businesses postponing investment plans as they cope with higher costs

Small business owners are delaying their investment plans as they grapple with increased costs and inflationary pressures, new Enterprise Nation research reveals.

The latest Enterprise Nation Small Business Barometer found a 26% drop in businesses looking to raise seed capital under £10,000 in the second quarter of the year, while the number seeking between £10,000 and £20,000 rose by 8%, suggesting more businesses are self-funding growth plans.

Despite that, growth expectations have been revised up for this quarter by six percentage points with 27% expecting to grow by at least a quarter in the next three months, up from 21%.

But a third of founders are still holding down full-time or part-time employment (33%) to fund their enterprise, which rises to 57% among the 18 to 24-year-old age group.

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

"Small business founders are holding their nerve and taking a cautious approach to taking on funding, while using their own cash by holding down a job.

"This is a sensible way to test an idea in the early stages, so it’s good to see that businesses are seeking higher investment later on when they are ready for it - and they are confident the time is right for them.

"We have seen for ourselves that businesses are still hungry for cash, but they are actively seeking out grants and accessing free support to get them to the next level. It’s one of the reasons we launched our own grant fund earlier this month to support these early-stage businesses with real ambition."

Growth optimism

Businesses in the West Midlands are most optimistic about growth in the UK, with 38% saying they expect to grow by a quarter, followed by the South West (30%) and the South East (29%).

Sixty-four per cent of Welsh and 54% of Scottish-based firms said they expected to stay the same for the next three months, but the picture is very different in the North East where a quarter (25%) of all firms expect to shrink along with around 22% in the East Midlands.

Tech firms (45%) said they were quite likely to expected to expand, with 28% of events companies saying they were very likely to expand. General retailers were most pessimistic with 17% saying they were very unlikely to expand.

Sales were down by 3% overall, with revenue falling most rapidly in the East Midlands and Scotland where 52% reported a cost-of-living-related drop, a 14% increase on the last quarter. In the North East, 50% said sales figures were down.

General retail and fashion appear to have been the hardest hit, with 61% in both categories seeing sales slump.

Digital Britain today

Almost half of all small businesses now see themselves as digital, with 42% of respondents saying they considered their company to be digital. That rises to 61% among the 25 to 35 age group and 57% among 18 to 24s.

Businesses in the South East (49%) and London (48%) were most likely to be digital, but that reduces to 35 per cent in Yorkshire and the Humber and the East Midlands.

Age is no barrier to starting up

The Barometer also looked at the age of business founders, with the average age at 46. Today more than a third (35%) of businesses are started and run by people over 50.

Business founders in the East of England had the highest average age at 52, followed by the South East at 51 and 50 in the South West. The East Midlands is home to youngest average age of founder at 43.

Small business case study

Lydia Berman, founder of Kings Langley-based creative agency Creative Stripes, the Creative Support Hub and Mapper Cards, which help neuro diverse entrepreneurs build businesses, said:

"It's scary to commit to higher levels of funding when you don’t know what's going on with consumer demand due to energy costs and interest rates over the next few months.

"Grant funding available from local authorities has fallen off a cliff since the days of the European Regional Development Fund. The amounts I can apply for now under the Shared Prosperity Fund are very low and require a 69% investment from you – something that's unlikely to make any difference to small firms."

Read the full Small Business Barometer Q2 2023 report

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