Business Advice, Finance, From The Top

How SMEs Can Innovate Their Way to Success in 2023

Staff writer | 30 June 2023 | 10 months ago

Small businesses have always been key drivers of growth in developed economies, and the UK is no exception to this rule.

However, SMEs are also among the most adversely affected by the current macroeconomic climate, which is characterised by rampant inflation, soaring interest rates (which are being hiked to supposedly counter the cost of living) and falling disposable income levels across the length and breadth of the UK.

This has the potential to create a vicious cycle of decline and depreciation on these shores, as small businesses see their revenues (and subsequent profit margins) dwindle while their tax contributions and job creation levels also start to fall.

In this article, we’ll take a look at some statistics that highlight the importance of SMEs in the UK economy, while asking whether small businesses can innovate their way to success in the current climate.

The Role of SMEs in Driving Economic Growth

At the beginning of 2022, the FSB reported that there were 5.5 million active SMEs in the UK, with these entities defined as businesses that employed between zero and 49 people).

This accounts for a staggering 99.2% of the total business population in the UK, making them the dominant employers and generators of income for the wider economy. More specifically, SMEs account for approximately three-fifths of private sector employment on these shores, while they’re also responsible for around half of the total turnover produced within the private sector.

Overall, total employment across all small businesses on these shores peaked at 16.4 million in Q1 2022, with this approximately 61% of the total number.

As for the precise turnover figures, SMEs generated around £2.1 trillion at the time of the report, This was 51% of all revenue generated within the private sector, with larger firms and corporations responsible for the remainder.

How is the Economic Climate Impacting on SMEs?

These figures highlight the importance of SMEs within the wider economy, while they should also raise concerns in light of the current macroeconomic climate in the UK.

After all, rampant inflation is continuing to hit small businesses hard, and while SME confidence increased to -2.8 during the first quarter of 2023, this metric remains 18.1 points lower than it was during Q1 of last year.

If we drill a little deeper into these numbers, we can see the impact of rising inflation a little more clearly. More specifically, some two in five SMEs saw their revenues fall during Q1, while barely 33% saw any kind of increase.

This can be partially attributed to the impact of inflation and rising interest rates, which are negatively affecting disposable income levels and either encouraging or compelling consumers to spend less. So, although two in five firms expect their sales volumes to increase in Q2, this won’t necessarily be sustained indefinitely in the current climate.

Incredibly, approximately 92% of small companies reported rising operational and material costs through Q1, meaning that SMEs in the UK are now spending more, earning less and seeing their profit margins squeezed at both ends.

Can SMEs Innovate Their Way to Success?

The question that remains, of course, is how SMEs can think proactively and optimise their success in the current climate? Well, in addition to being highly economic generative, small businesses are also leaders in the fields of innovation, and this could signal a path to growth in the near-term.

Certainly, it has been revealed that more than half of SMEs in the UK have adopted artificial intelligence (AI) in some form or another in recent times, while a further quarter are expecting to follow suit going forward.

This was discovered following a survey of around 1,000 UK small businesses, from multiple sectors and of various sizes.

But how is AI being deployed within these businesses?  Well, it’s being heavily used in the field of marketing, with the technology enabling even smaller firms to harness the huge swathes of data at their disposal and use this to create customised, targeted and more cost-effective advertising campaigns that are capable of delivering a superior return on investment over time.

AI is also driving automation in small businesses, especially those in the manufacturing sector. This is helping companies to become more efficient from an operational perspective, potentially optimising revenues and profitability going forward. While some have expressed concerns that automation and AI may take away entry level jobs in certain sectors, this actually has the potential to create better paid jobs and boost the economy in the longer-term.

From a more general perspective, AI can contribute to more agile businesses that are more equipped to cope in volatile and austere conditions, in the same way that it has previously assisted financial traders.

In the financial marketplace, traders leverage AI to automate trades and identify the best forex signals, optimising the volume of orders that they execute without compromising on accuracy or insight.

This trend can definitely be replicated by small businesses and in the wider economy, and this process may prove crucial if SMEs are to remain key drivers of growth in the UK.

Related Topics

Exploring the Immersive World of VR Development: Applications and Opportunities
25 September 2023

Exploring the Immersive World of VR Development: Applications and Opportunities

Read More →
The Importance of Data Analytics in Making Informed Business Decisions
14 September 2023

The Importance of Data Analytics in Making Informed Business Decisions

Read More →
Financial Planning for Small Business Owners
11 September 2023

Financial Planning for Small Business Owners

Read More →
Navigating Financial Challenges: 5 Tips for SMEs
17 August 2023

Navigating Financial Challenges: 5 Tips for SMEs

Read More →
What is Debt Financing?
14 August 2023

What is Debt Financing?

Read More →
What is Straight Line Depreciation and Why is it Important?
11 August 2023

What is Straight Line Depreciation and Why is it Important?

Read More →

If you enjoy reading our articles,
why not sign up for our newsletter?

We commit to just delivering high-quality material that is specially crafted for our audience.

Join Our Newsletter