Less than half of small and medium enterprises (SMEs) in Scotland had a contingency or rainy-day fund in place before the inflation spike earlier this year, a report has found.

A UK-wide survey of 1,000 senior decision makers by Cynergy Bank found that higher energy and finance costs created serious cashflow challenges — with only 37% in Scotland having cash buffers in place prior to July 2022 when prices began to rise.

The research also found that nearly two in three (60%) had no contingency fund in place.

Most bosses were somewhat slow to protect their business from rising borrowing costs, the report found with as little as 3% fixing their mortgage or rent in the early stages of the Bank of England’s hiking cycle.

Sharon Maguire, Chief Product Officer at Cynergy Bank, comments: “There has been a sea change in attitudes towards crisis planning. Cost pressures over the past year has led to businesses reassessing their risk profiles, and in addition to cost savings SMEs are urgently looking for solutions to help them build resilience in their businesses.”

While rising inflation and interest rates have eaten into financial firepower, they have also accelerated the pace of change and innovation within buisniness.

The nearly all respondents (90%) said that the cost-of-living crisis had caused them to make significant changes to their business operations.

Recommended reading

• New Report Finds UK Fintech Funding Down 37% in H1 2023
• Year-on-year Increase in Financial Distress for Scots Firms, Data Shows
• Glasgow the Top Scottish Spot for Business Creation

SMEs claim to be budgeting more thoughtfully, with about a third (31%)of those impacted by soaring overheads saying they have shipped around on suppliers.

Nearly half (43%) had switched materials, while 12% had resorted to using poorer quality goods and one in four (25%) said they have rearranged working patterns to save on energy bills.

Increasingly, the majority of businesses (58%) said that tech and innovation have played a “huge” part in their response to cost pressures, including circumventing traditional sales channels and innovating how their offering is sold.