More small Scottish firms expect to shrink, close or sell up in the next year than grow, according to new figures from FSB Scotland, which claims decisive government action is vital for their survival.

The business group’s latest Small Business Index revealed that almost a third of small businesses (29%) now expect to contract or close up shop, compared to just under a quarter who expect to grow (24%), representing both the highest number of firms expecting to shrink, and the lowest number expecting to grow, since the outbreak of the pandemic in 2020. 

Added to that, the FSB found that confidence among small businesses in Scotland has also fallen, hitting a net rating of -35.7, a sharp decline from the previous quarter’s -15.3.

Almost half of small businesses in Scotland (48%) reported a fall in profits over the last three months, compared to just over a quarter who saw an increase (27%), while twice as many cut staff (18%) as increased employee numbers (9%).

Nearly nine in 10 Scottish respondents (88%) experienced rising costs over the second quarter of 2025, largely due to increases in utility bills, as well as labour (41%) and tax costs (40%), though more than half (54%) cited wider economic conditions as the biggest barrier to growth.

Those findings in particular reflect UK-wide concerns about the impact of higher employer National Insurance contributions and increases in the National Living Wage, which have raised the costs of employing staff across the board.

As the impending Employment Rights Bill makes its way through parliament, small business owners may yet face even more government reforms that will impact their bottom line, including changes to sick pay and tipping allocations that will come into force over the next year.

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Looking ahead, things don’t appear to be getting much better, with nearly one in three (30%) small businesses expecting to see an increase in profits over the next three months, significantly down on expectations from the previous quarter (41%).

“The governments in Westminster and Holyrood have been making all the right noises about supporting the small business community. These stark findings show the urgent need for decisive action,” said Guy Hinks, FSB Scotland Chair.

“At Westminster, that means taking steps to tackle the blight of late payments, the inappropriate use of personal guarantees on business loans and listening to business concerns about the Employment Rights Bill and its dampening effect on firms taking on staff.

“At Holyrood and in local authorities across Scotland, that means ensuring the needs of small businesses are fully taken into account whenever any policy is brought forward, from creating a level playing field for small firms bidding for valuable public contracts to local Visitor Levy schemes.”