UK SMEs are ambitious for the opportunity to regain lost ground post-pandemic, but risk being held back by a myriad of mounting pressures including rising costs and cashflow challenges.

According to Bibby Financial Services’ (BFS) annual SME Confidence Tracker survey, this difficult operating environment is causing friction and fragility amongst smaller businesses.

Exploring the views of 500 UK SME owners and decision makers, it finds that 82% of SMEs now feel confident about their prospects this year, a six-percentage point increase compared to 2021, and over the past six months 56% of businesses have reported an increase in sales.

But the report warns that while SMEs have duly earned their resilient reputation, this optimism is set against a backdrop of continued uncertainty. Research shows profitability is on a knife edge.

Four in ten (38%) now describe themselves as ‘just about breaking even’ – equivalent to 2.1m SMEs – while only half (52%) describe themselves as profitable and one in ten (9%) say they are operating at a loss.

“UK businesses face a heady cocktail of issues that threaten to impact growth forecasts for 2022 and beyond, including soaring inflation, skills shortages, and a cost of living crisis not seen on such a scale in the 21st Century,” said Derek Ryan, UK MD of Bibby Financial Services.

“While our report highlights a stoic resilience amongst the UK SME community, many are still struggling to keep their heads above water and operating on a day-to-day basis, rather than looking ahead to growth.”

The report highlights key concerns for SMEs, with businesses ranking inflation (42%), conflict in Europe (37%) and supply chain disruption (33%) as chief concerns, in addition to ongoing challenges arising from COVID-19 (33%).

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Concerns vary by industry with SMEs in the manufacturing sector most worried about inflation, the rising costs of raw materials – such as steel – and staff costs. Construction and wholesale sector SMEs are mostly pre-occupied by conflict in Europe. While for transport businesses the biggest worries include cashflow, Brexit and staff shortages, as well as a lack of lorry drivers and the impact of red tape on cross-border trade.

Overall, more than a quarter of businesses (26%) highlighted cashflow as a concern. Almost one in five (17%) said they need cashflow support more now than before the pandemic and 9% said that they don’t even have the cashflow they need to operate on a day-to-day basis.

When cashflow is so critical to business survival, late or failed payments can be fatal to this new tribe of ‘Just About Breaking Evens’. More than a quarter (28%) – equating to 1.5m businesses – say they have suffered from bad debt in the previous 12 months, where sums have been written off owing to customer non-payment or protracted default. This is significantly higher than 2021 when 20% reported bad debt and the report finds that SMEs have written-off an average of £10,329 in the last year alone.