Despite challenging economic headwinds, the Federation of Small Businesses (FSB) found that three fifths of small businesses in Scotland intend to grow in the next year.

While many small businesses had positive outlooks, struggles such as the cost-of-living crisis, high energy bills, confounding regulations, and the skills shortage have caused them to lose business this year.

The Big Small Business Survey received 602 responses from small businesses across Scotland between 30 January and 10 March 2023, attempting to gain a cross-sector perspective on small business outlooks.

FSB’s Scotland Policy Chair Andrew McRae said: “This is the most comprehensive study we’ve ever undertaken into the state of Scotland’s small businesses, the challenges they face and the opportunities they see ahead. We heard from firms in every part of Scotland, representing every industry sector.

“Too often, decision makers fall into the trap of treating business as a monolith, making decisions that assume our smallest firms are operating on the same playing field as multinational corporations. What this study demonstrates is that, not only is there a distinction to be drawn between small businesses and their larger counterparts, but indeed there is a huge degree of diversity within the small business community itself.”

The findings show how distinct and diverse the struggles small businesses face are.

The Findings

Almost an equal number of small businesses saw either an increase (45. 3%) or a decrease (41.4%) in their turnover last year.

Of those responding with increase, almost half saw an increase between 0-10%, whereas nearly half (47.9%) of those responding decrease saw turnover fall between 11-30%.

Over three fifths of businesses which reported a turnover decrease in the last year attributed this to the cost-of-living crisis or overall economic uncertainty. Other reasons included a decline in customer/footfall (46.5%).

Businesses also specifically listed Brexit as a reason for turnover decrease, with others still reeling from the effects of Covid-19 lockdowns.

Outside of overall trade, small businesses found they were struggling to keep up with tax and regulatory frameworks, and felt unsupported or unclear on how to implement net zero targets.

Interestingly, the respondents were split on on the issue of staffing, with 50.8% saying they had enough staff to meet their needs, with 49.2% saying they did not.

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Almost a third (27.5%) of businesses who feel a lack of staff has impacted their business have had to reduce the range of services they offer, with others having to reduce opening ours.

42.1% of businesses do no feel confident they can employ enough “appropriately skilled staff” this year.

The most cited reason for this is the absence of available local workers (54.5%), followed by a lack of confidence in demand to rationalise increasing staff numbers (46.3%).

In order to maintain their business and keep up with energy costs, two thirds of SMEs intent to increase their prices by 5-10% in 2023.

Despite all these struggles, more than three fifths of Scottish SMEs still plan to grow their business in the next two years.

25.6% of businesses plan to do this by employing more staff, with around 25.3% saying they will grow without employing more staff.

10.7% claim they will grow by exporting to new markets – which could prove difficult as the UK has left the EU market.

About a fifth (19.9%) of businesses plan to stay at the same size, with only 5.7% planning to shrink, and 5.2% planning to close.

Mr. McRae commented on the findings: “It’s clear that smaller operators have had a tough few years, with a similar proportion of respondents reporting that 2022 posed as great a challenge yet as the worst of the pandemic in 2020. What we can infer, though, is that things are looking up and the much-anticipated economic recovery could be on the horizon, with three in five businesses telling us they plan to grow over the next year.”