In its latest research into the UK’s small and medium sized enterprise (SME) economy, NatWest Group identified an encouraging trend among the country’s independent operators, as SME growth continued for the fifth consecutive month.
Two sectors led the charge. The service industry continued 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 used its NatWest SME Purchasing Managers’ Index (PMI) Business Activity Index to quantify SME growth. A reading of 50 or above signals a general expansion among UK SMEs.
Recorded at 52.6 in the first quarter of 2024, the Index revealed sustained growth for SMEs.
Investing in sustainability
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 can have a positive impact on overall efficiency, as businesses seek a return on investment beyond Environmental Social Governance (ESG) objectives.
Planning cash flow for growth
It is evident from the report’s findings that SMEs could need sufficient access to funds to facilitate growth in the coming years if this pattern continues.
Central to this is 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