What does 2022 have in store for SME owners?

2021: A year to forget

Although there was a new 50% business rates discount for 12 months for the retail, hospitality, and leisure sectors, and a 5% cut in draught cider and beer, the general feeling towards this year’s Budget was one of being utterly underwhelmed as the chancellor seemed to forget all those hard-working SMEs who are the lifeblood of UK plc and the foundations of its recovery.

The missed opportunity is hopefully the final blow in what has been an extraordinarily tough year. The scarring caused by the Covid-19 pandemic is set to remain for some time, with any CBILS loans now having to be repaid and the end of furlough seeing already struggling businesses having to pay salaries for employees without whom recovery will be impossible.

This year has also seen us face record gas prices thanks to a 250% rise in the wholesale price of gas since January, while the very supply chains that keep businesses, and even society itself, functioning have fractured in an almost extraordinary way. The Covid-19 pandemic itself had already posed significant challenges for food and drink supply chains globally before the recent crisis on petrol station forecourts. Multiple national lockdowns slowed, or even stopped, the flow of raw materials and finished goods, disrupting production as a result. As the post-pandemic world quickly reverts to its consumerist ways, demand is soaring, ensuring that the current supply chain issues are set to continue and, what’s more, deepen. 

Food price inflation is running at over 30% globally in 2021 and feeds into broader price inflation in the UK, which has reached its highest level (4%) since the ‘boom and bust’ days of 1992 (the blip in 2011 notwithstanding). With wage increases of 3.5%, running behind general inflation, shortfalls will no doubt materialise in people’s pockets. The knock-on effect for SMEs will be pressure from employees for wage increases to fund the increased cost of living. And all of this comes on top of the rise in the minimum wage.

2022: Positive signs

SMEs will have to be careful to manage this inflationary pressure, and clients have even started to re-establish inflation clauses in long-term contracts so they can renegotiate deals if inflation rises above a certain level. Of course, for food processors, distributors and retailers, any significant rise in prices from suppliers could be passed on to the consumer where there is increased appetite for spending post-lockdown. But with the supply chain challenges so severe as to cause food procurement and distribution SMEs to scale down by focusing on preferred client rosters, it is increasingly difficult to believe central banks that inflation is transitory. 

On a brighter note for SME producers, the acquisition market is very strong which will continue for some time as larger companies seek to plug the gaps in their offerings which were exposed during the pandemic. It is undoubtedly a seller’s market so do spend some time considering an exit strategy as this is an opportune moment. For example, just a few months ago, the Isle of Bute based vegan cheese manufacturer was acquired by a Canadian giant (Saputo Inc) which illustrates that even relatively small and remote businesses are of interest to much larger corporations if their offering is of strategic interest.

Funding opportunities for 2022

If your business is not quite exit-ready, then your appeal to potential investors or lenders – whose funding could turbo-charge your growth – will be driven far more by your product quality, sales growth, diversified routes to markets, profit margins and, importantly, your growth plan and how realistic it is.  

For businesses wanting to fund growth, it is important to remember that a low headline interest rate is not a good indication of a loan’s affordability. Growth funding is best achieved through long-term debt, which ensures cash is retained within the business to support the plan as opposed to making the business ‘work for the bank’. The banks currently have little appetite to lend beyond three years, so it would be prudent to explore the alternative funding market for longer term growth funding solutions.

In our experience, we see many SMEs with solid growth plans and modest borrowing get rejected by banks. There are many reasons other than your creditworthiness why a bank may have said no. Numerous alternative funding options exist that don’t require you to change banking. So don’t let a ‘No’ impede your growth.

In general, while 2022 will see most SMEs continuing to fight hard just to get themselves back on an even keel, it is vital that they remain aware of the opportunities that still exist for growth.