Proportion of small businesses experiencing barriers to growth hits five-year record high

A record number of small business owners say a range of market factors are holding their enterprises back from growing. Nationally, 81% of small business owners cite barriers to growth, up from 76% this time last year and 73% five-years ago.

These findings from Novuna Business Finance come a time when UK petrol prices have hit a record high, UK growth forecasts are predicted to stall in Q3, and as the European Central Bank (ECB) plans to raise interest rates as Eurozone inflation is predicted to average 6.8% this year[1] - three times its 2% target. These shocks are playing out directly on small business confidence, with 46% of business owners saying that general market uncertainty is itself a barrier to planning business growth.

The representative poll of 1,228 enterprises asked UK small business owners about their growth plans for the summer and which, if any, factors were holding their business back from growing. Whilst 34% of respondents predicted growth, either significant or modest, eight in 10 cited issues that they regarded to be barriers to moving forward.

• Looking at specific issues, the latest quarterly findings from Novuna's Business Barometer suggest the long-term consequences of Brexit are far greater than the legacy of the pandemic. Nationally, 30% of small business owners still regard Brexit as a problem, whist the disruption caused by COVID has fallen sharply in the last 12-months, from 30% to 18%.

• The last year has also seen significant rises in concerns over the cost of attracting skilled labour (rising from 14% to 21%), coupled with the perceived challenges of coping with rising fixed costs and overheads (rising from 15% to 24%).

• Long-standing small business issues such as red tape (20%) and volatile cash flow (16%) continue unchanged as significant barriers to growth. Despite many enterprises having to endure unprecedented change during the pandemic, there has been no change during this period in the proportion of business owners that cite red tape and cash flow as major concerns.

• With summer season starting, the Novuna Business Finance research also suggested that seasonal enterprises were more likely to experience barriers to growth than non-seasonal businesses (88% vs. 75%). Issues that were bigger growth barriers for seasonal businesses comprised of: general market uncertainty (54%), coping with rising fixed costs (28%) and the long-term impact of Brexit (20%).

• By sector, small businesses in retail (93%), manufacturing (90%) and hospitality (84%) were most likely to voice concerns over barriers to growth this summer. Concerns have risen over the last 12-months. Retail small businesses were most concerned about general market uncertainty (61%) and the long-term impact of Brexit (43%) - whereas manufacturing enterprises viewed the cost of skilled labour and rising fixed costs as barriers to growth (28% for each). Hospitality was the one sector where the impact of COVID continued to be viewed as a major issue (32%).

• By region, small businesses in Scotland (84%) and the North West (85%) were most likely to be experiencing barriers to growth at the moment. Scottish enterprises were most concerned about Brexit impact (41%), rising fixed costs (31%) and red tape (29%) - whereas those on the North West were most likely to be struggling with volatile cash flow (18%).

Jo Morris, Head of Insight at Novuna Business Finance: "After all we have been through in recent years, it is perhaps a surprise that small businesses are more likely to experience barriers to growth now, after many have resiliently weathered both Brexit and a global pandemic. In truth, we are beginning to experience the true economic fall-out of the pandemic and some are still feeling the long-term effects of Brexit. Add to this the economic ripple of the war in Ukraine, and we are entering a period of significant market uncertainty that will impact every business and its supply chain. From our study, it is clear that market volatility is throwing up barriers for the vast majority of small businesses. It is too early to predict whether this will play-out in small business confidence falling in the autumn months - but the pressing task now is for enterprises to review plans and adapt. Many have done a brilliant job at doing this during the pandemic - and, for some, uncertain times are actually the opportune moments to adapt and invest in growth."

Top barriers to growth: A comparison of findings over 12-months

Percentage of small business owners citing barriers to growth - by sector

Percentage of small business owners citing barriers to growth - by region

[1] The Guardian: 9 June 2022.

Note to editors

The research was conducted by YouGov among a representative sample of 1,228 small business decision makers during the first week of June 2022, spanning all key industry sectors.