SME recovery continues as sustainability and growth take centre stage
In its latest research into the UK’s SME economy, NatWest Group has identified an encouraging trend among the country’s independent operators, as SME growth continues for the fifth consecutive month.
Two sectors led the charge, as the service industry continues to be a significant driver of growth, while the manufacturing sector enjoyed expansion after a period of stagnation.
Summarising its overview of the SME economy, the Group employs its NatWest SME PMI Business Activity Index to quantify SME growth, with a reading of 50 or above signalling a general expansion among UK SMEs.
Recorded at 52.6 in the first quarter of 2024, the Index reveals sustained growth for SMEs that prioritise long-term success over short-term figures.
However, individual sectors were not the focus of this latest research – that title goes to the potential for future sustainability and investment.
Investing in sustainability
It may come as little surprise that the latest report found investment in energy efficiency and green working practices to be a major priority for 36 per cent of SMEs in the coming year.
With 18 per cent planning to invest within the next 12 months, and a further 41 per cent set to invest within five years.
It seems that the benefits to SMEs of sustainable processes are becoming more widely acknowledged and accepted.
From a financial perspective, the long-term benefits of sustainability are considerable, including access to additional tax relief and funding.
Additionally, adopting cutting-edge working practices to support sustainability inevitably has a positive impact on overall efficiency as businesses seek a return on investment beyond ESG objectives.
Planning cash flow for growth
It is evident from the report’s findings that SMEs are going to need sufficient access to funds to facilitate growth in the coming years if this pattern is going to continue.
Central to this is going to be cash flow planning, particularly if costs continue to rise and SMEs face accompanying financial challenges.
We typically recommend that SMEs create a healthy cash flow through:
- Forecasting future cash flow to support long-term plans for investment
- Maintaining liquidity reserves to cover unexpected expenses
- Utilising financing options such as bank loans, lines of credit, or even trade credit
- Regularly reviewing and managing costs through automation or new supplier contracts, for example
