Small Business Advice

Decline in hiring by SMEs to cost economy £6.1bn per year

4 Oct 2017

Hiring among small businesses looks set to tumble by 2022 as Brexit uncertainty takes its toll, costing the economy more than £6 billion a year.

A quarterly health check of small and medium-sized businesses, compiled by lender CYBG and the Centre for Economics and Business Research (CEBR), signals the average number of workers taken on each year will plunge between 2017 and 2022.

It estimates the sharp pull back in SME hiring could cost the UK economy dear, seeing the annual contribution to the UK’s gross value added (GVA) figure fall to just £4.8 billion.

This compares with around £10.9 billion added each year to the UK economy between 2010 and 2017, according to the report.

While we are a small business accountant and highly-skilled business consultant, the team at Accounts and Legal has been recently bolstered by the addition of a vastly experienced HR Adviser.

Our team are equipped to guide you through a very challenging time for businesses in search of new, quality staff. Get in touch to discuss how we can help your business attract the highest level of talent.

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Wake up call

Gavin Opperman, group customer banking director at CYBG, has described the new figures as a “wake-up call”, adding that “SME contribution cannot be underestimated."

“We must understand the pressures facing them and provide the right environment and support to help them flourish and continue being a major employer of the UK’s workforce.

“In particular, we must give our small firms the access to talent they need post-Brexit and address how these firms can be incentivised to invest in skills,” his statement continued.

The SME sector currently employs around 16.1 million people, roughly 60% of the UK’s total private sector employment, according to the report.

A further survey of SMEs by CYBG on hiring plans for the rest of 2018 found that 9% of firms are expecting to cut the size of their workforce over the next six months, while 6% fewer SMEs are now planning to expand their workforce than the 58% who increased the size of their workforce over the past six months.

Firms said a worsening outlook for the UK economy was a large factor behind the reluctance to hire, as well as rising employee costs and a reduced availability of skilled workers.

On a positive note, the latest SME health check index has also showed some good signs for the future, indicating the sector’s overall health is improving, with a reading for the first quarter of 2018 increasing by 3.4 points to 47.4 and ending five consecutive quarters of decline.

Challenges of hiring for a small business

According to research from American Express, in partnership with the Centre for Economics and Business Research (CEBR), more than a third of small businesses report a shortage of the necessary skills among applicants.

This figure increases to 42 per cent among medium sized enterprises.

It’s clear that the thin talent pool is the main hurdle when it comes to hiring, and while the government hopes to tackle the shortage through apprenticeship schemes, SMEs are the first to suffer in the interim.

Costly endeavour

Of course, taking on new staff also comes at a cost, and the research found that a further 27 per cent of small businesses are worried about how they will fund the hiring of new employees.

This highlights the importance of financial management when it comes to ensuring a business can bring in staff as the company grows.

But smaller businesses face the added challenge of being in competition with large organisations that will potentially be able to offer more in the way of salary and benefits, making it harder for SMEs to attract the right candidates.

Additionally, 43 per cent of SMEs find the cost of hiring to be excessive, according to a Michael Page survey from 2017.

Of those surveyed, a further 56% said that if the value for money could be demonstrated, they would use an external hiring agency to recruit talent.

Between a rock and a hard place

Recruiting the right people is crucial for any business, but this is even more in focus for smaller businesses.

Attracting and securing new employees can be a costly and time consuming process, and with much of this often coming directly from cash flow, it’s easy to see why smaller business owners experience challenges. It’s between a rock and a hard place for many.

It’s clear that investing in staff is a top priority for many SMEs. In fact, 22 per cent of small and medium sized businesses would put increasing staff numbers at the top of their to-do list if their revenue were to double.

Overall, the coming four-year period looks like a challenging one for SMEs, but that's not to say these challenges can't be overcome.

With the help of the right accountant, you can get a better grasp of your cash flow forecast, your company's business plan, and the overall business strategy that will help plan your hiring patterns and financial position over the coming years, particularly as Brexit comes into effect.