These businesses have faced immense challenges with sky high inflation, reduced consumer spending and record late payments making things increasingly hard. Despite this, the smallest firms – those employing up to nine people – have continued to deliver for our economy and provide over a quarter of total UK jobs.
But their contribution could be even greater. Our Beating the “digital drag” report with the Centre for Economics and Business Research (Cebr) reveals these smallest businesses could generate £77.3bn in extra revenue and create 885,000 new jobs if they digitalised at the rate of the top 20% of tech adopters.
Just 30% of small businesses (0-9 employees) have increased their use of digital technologies since 2019, compared to 69% for larger SMEs (10-249 employees). And they are using twice as few digital tools at 4.7, compared to 8 for larger SMEs. These businesses are often grouped into the wider ‘SME’ sector. But their needs are different.
We need to see more tailored support to help speed up digitalisation. The impact for our economy and our country’s smallest businesses could be huge.
The case for digital adoption
UK economic growth is inextricably linked with digitalisation, and our research shows that those who embrace technology are seeing stronger performance. SMEs that digitalised most in the last four years grew their revenue by 8.1%. However, the slowest suffered a decline of 4.7%.
For those embracing technology, 71% said that digital tools brought at least one financial benefit to their business. The most common benefits small businesses experienced are improving customer experience (38%), cutting costs (32%), boosted productivity (31%), time saving (30%), and stronger cash flow management (27%).
This shows that the more digital a business, the better their overall performance. That’s why closing the gap for small businesses presents such a big opportunity.
Advice for beating the ‘digital drag’
Taking steps towards greater digitalisation can be hard for small businesses, especially when they don’t have the same resources as larger SMEs. 40% of small firms say they fail to see the relevance of new technologies to their company. And a fifth (20%) say they lack the skills to adopt new tools.
The choices can be overwhelming, so if you’re a small business owner here are some tips to help choose the right technology for your business:
- Set clear expectations: help staff embrace new technologies by tackling psychological and behavioural barriers. Part of this comes down to talking plans through so everyone knows what’s expected of them, and how the tech will help them do their jobs.
- Prioritise the right tech: start with the options that will have the most impact. Think not just about what the tech can do, but how it will fit into company culture.
- Predict trouble spots: think about all the things that could go wrong. Advance planning can reveal any hidden threats and help avoid any teething problems.
- Balance costs and benefits: create lists of the costs and benefits. Being objective helps overcome any resistance to change by identifying exactly what’s at stake.
- Put into practice: check out relevant training and support from industry bodies, groups or trade associations. Working with a mentor or advisor (like an accountant or coach) is another great way to develop a strategy and boost skills in key areas.
- Learn and adapt: reach out to people, like an accountant or business coach, who might be able to offer insight into how similar businesses have digitalised, and what benefits they have enjoyed. Find out what did and didn’t work for others.
When every £1 made by a small business creates 59p more for the wider economy, surely it’s in everyone’s interest to boost their potential with technology? From Government to technology providers, and a range of stakeholders – we all have an important part to play in breaking down the barriers for small businesses.