More than two in five (40%) of Welsh SMEs will struggle to meet rising payroll costs in April due to the incoming health and social care levy increase in National Insurance Contributions (NICs), as well as rising minimum wage rates, reveals a monthly SME Recovery Tracker from ACCA (the Association of Chartered Certified Accountants) and The Corporate Finance Network (CFN). This is 14% higher than the UK national average of 26%.

The survey, which polled accountancy professionals representing more than 17,600 Welsh businesses on the financial outlook for their SME clients, reveals the mounting financial pressures – such as surging cost inflation, interest rate rises of 0.25% to 0.5%, the energy crisis and now the forthcoming health and social care levy – are all causing severe impact on SMEs’ ability to survive or grow.

The latest survey paints a particularly bleak picture about the current strains on Welsh SMEs in comparison to the rest of the UK. They are feeling the squeeze of the pandemic the most, with respondents expecting 47% of their SME clients to run out of cash in the next year. This is more than double the UK national average of 1 in 5 (21%) UK small businesses expected to run out of cash in the next 12 months.

The Mental Health Crisis for Welsh SMEs

Economic, operational and financial pressures are also taking their toll on the wellbeing and mental health of Welsh SMEs. Accountants state that 45% of their SME clients are feeling more stressed and anxious than usual, a huge 37 percentage point increase from pre-Christmas levels. In comparison to the rest of the UK, this is 10% higher than the national average (35%).

The alarming trend is also evident across the UK, as the number of businesses reporting worsened mental health conditions has more than doubled to 17% since pre-Christmas, and those that aren’t sleeping (16%) and feeling that they are unable to cope (6%) have doubled in the last two months. However, Welsh SMEs are experiencing greater overall struggles including the highest levels of stress and anxiety (45%), difficulty sleeping (28%) and worsened mental health (34%).

Appetite for growth hindered by access to finance

Despite the increasing pressures, over a third (34%) of Welsh SMEs are hopeful about growth ambitions in the next six months. However, these aspirations are not matching  the reality of SMEs’ financial situation.

Although the findings demonstrate an appetite for growth, more than four in five (81%) of Welsh SMEs are unaware of the finance options available to them – 13 percentage points higher than the national average. This is concerning and highlights the importance of SMEs speaking to their accountants, who can provide expert advice on the funding available from a range of sources.

Lloyd Powell, Head of ACCA Cymru Wales, commented on the findings:

“Our latest research reveals alarming results about the current pressures on Welsh SMEs and the impact those pressures are having on their wellbeing. With two in five (40%) Welsh SMEs anticipated to struggle to meet payroll costs in April, the UK government needs to seriously consider the knock-on effect of policy decisions, and also what further support the Welsh Government can provide. Ultimately, these figures indicate that many Welsh businesses are at risk of failing this year due to the impact of rising costs including and the impending increases in National Insurance Contributions (NICs) and minimum wage rates.”

Kirsty McGregor, founder of The Corporate Finance Network, added:

“All indicators across this Tracker are alarming. As our research suggests, the hike in National Insurance rates will leave already demoralised small business owners and sole traders in an extremely testing position. UK SMEs have already endured prolonged financial strain with 6% of UK SMEs expressing they are unable to cope.

“While SMEs remain hopeful and the findings demonstrate an appetite for future growth, the onus rests on the government to support SMEs, to provide them with the resources that they need, instead of placing more hurdles for them to overcome.”