Medium-sized UK businesses ‘more optimistic’ than smaller firms

Medium-sized businesses are more optimistic about the future than smaller firms, according to the latest ‘business pulse’ Azets Barometer.

Azets, the UK top 10 accountancy and advisory firm, which specialises in supporting the needs of businesses and their owners, launched the findings, which features 353 responses from businesses across the UK in April 2024.

The survey reveals that business leaders are cautiously optimistic about their expectations for the next year, with respondents rating their economic prospects at 5.5 out of 10. 

The findings may well be of interest to companies in Kent, where Azets has regional offices in Maidstone, Ashford, Canterbury, Sandwich and Orpington.

UK businesses are among the least optimistic of the six Northern European countries surveyed, with Denmark (6.8) and Ireland (6.1) most optimistic.

The Barometer highlights a clear correlation between business size and financial confidence, with smaller firms in the UK in a slightly weaker financial position relative to their peers. 

Small businesses employing 10-49 people scored 6.1 out of 10 while medium-sized businesses that employ 50-249 people scored 6.8.

Large companies expressed the highest levels of optimism about their own financial performance, scoring 7.3 out of 10.

According to the survey, economic and geopolitical uncertainty rank as the challenges at the forefront of businesses’ minds, at 5.8 and 5.4 out of 10 respectively. This was followed by talent recruitment and retention and regulatory compliance (both 4.9).

UK businesses show moderate confidence in talent attraction (5.6 out of 10) and retention (6.2). There is a notable difference in firm’s confidence levels between the two, with 58% of respondents expressing higher confidence in their ability to retain top talent, while only 48% indicate the same level of confidence in attracting new talent.

Asked about the main challenges relating to talent, competition from other employers ranked highest (41%), followed by a skills shortage in the labour market (39%), work-life balance considerations (36%) and compensation and benefits (34%).

Looking ahead, the UK’s business community expects turnover, profit and headcount to increase in the next 12 months, with scores ranging from 5.8 to 6.3 out of 10. 

Respondents to the survey also expect an increase in digitalisation, cybersecurity and sustainability. 

Firms are more cautious about international trade at 5.4 out of 10 and expect a slight decrease in borrowing to fuel growth in the next 12 months, scoring 4.8.

In terms of investment intentions, the Barometer revealed that 84% of UK businesses are planning to invest in cybersecurity measures, with other priorities including digitalisation (75%), employee retention (73%), and recruitment (69%). 

Employee retention will receive the largest investment, with almost one-fifth of businesses (19%) planning to invest at least £50,000 and 4% committing to invest more than £250,000.

More than a quarter (27%) of medium-sized businesses which employ 50-249 people said they will make no investment in artificial intelligence (AI) over the next 12 months.

Despite these investment plans and with businesses having battled against sustained economic turbulence spanning several years, the Azets Barometer found that on average UK businesses prepare their cashflow forecast 9.4 months in advance. 

The most popular timeframe among UK businesses is 10-12 months in advance, with one-third (31%) of companies preparing their forecast within this range. 

One-fifth (21%) of businesses plan their cashflows 4-6 months in advance, while 22% engage in shorter-term forecasting of up to 3 months.

When asked how much thought their organisation is giving to succession planning, 58% of UK businesses scored between 6-10, with almost half (47%) scoring 7 or higher, indicating widespread recognition of the importance of leadership and continuity. This contrasts with an average of 46% in other Northern European markets. 

The high scoring proportion in the UK implies that succession planning is well integrated into business’ strategic planning and positions the UK as a benchmark for effective succession planning.

Peter Gallanagh, Azets UK chief executive, said“It’s clear from this latest Azets Barometer survey that UK businesses are mainly optimistic about the future and mildly confident about the UK’s economic prospects. 

“It’s sensible that businesses remain cautious and take a pragmatic approach to investments in the next 12 months, with a General Election in July creating even more uncertainty, against a backdrop of long-term economic instability.”

Peter added: “Growing businesses are at the beating heart of the UK economy, and many have the potential to scale-up their success. 

“By taking the significant obstacles facing smaller firms and incentivising the growth of medium-sized firms, we can unleash the true potential of UK businesses.

“At Azets, we pride ourselves on our ability to understand and meet the needs of these ambitious businesses and their owners.”

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