UK tech SMEs face financial hurdles but remain optimistic

A recent report by Dojo, a card payment provider, has highlighted the financial pressures and adaptive strategies of small and medium-sized tech enterprises (SMEs) within the UK's IT and telecoms sector. The study, which surveyed 1,001 SME owners, reveals a variety of insights into how these businesses are navigating 2024's financial landscape.

The survey's findings show that the average cash runway for businesses within the IT and telecoms industry stands at 7.02 months, compared to the overall business average of 6.41 months. However, 16% of IT/telecoms SMEs do not have an emergency cash buffer in place, which raises concerns about their financial resilience.

Despite these financial challenges, a significant 79% of tech SMEs are anticipating growth in revenue and profits this year. This optimism may be in part due to the reported borrowing by IT founders, amounting to an average of GBP £95,000 to support their businesses. Interestingly, only 4% of tech founders have not borrowed money or accessed additional funds for their business.

One of the standout findings from the report is the cost of investing in technology, which 30% of SMEs cited as their biggest business challenge. This includes expenditures on new technology, upskilling employees in digital skills, and using technology to enhance business efficiency. Other notable challenges include deadlines (26%), financial stress (24%), staff retention (24%), and keeping up with customer demands (23%).

With the current market conditions, only 1% of IT/telecoms SMEs have not considered cost-cutting measures in 2024. As per the report, the most common cost-cutting measures include optimising bills (39%), increasing rates/prices (37%), cutting production costs (36%), and closing down offices (35%). This trend of office closures, cited by 35% of surveyed SMEs, likely reflects the post-COVID shift towards more flexible working arrangements.

Staff retention appears to be a significant concern, with 24% of tech SMEs identifying it as a major challenge. Attracting and retaining skilled workers is critical in maintaining operational efficiency and driving business growth. Hiring difficulties were reported by 23% of the respondents, which is another indication of the competitive job market.

The survey further revealed that almost a quarter (24%) of SMEs are experiencing financial stress due to factors such as inflation, high interest rates, and restricted access to credit. Furthermore, 26% of tech SMEs have had to make redundancies in response to these financial pressures. This is indicative of the tough decisions many business owners are facing to balance their books.

Regarding the borrowing habits of tech founders, private loans (34%), personal credit cards (34%), and borrowing from friends (32%) were the most common sources of additional funds. A notable 23% turned to family members for financial support, while 19% utilised crowdfunding as a resource.

In light of these financial manoeuvres, the proactive steps taken by tech SMEs to ensure business survival and growth are evident. The report provides a comprehensive look at the financial health of tech SMEs, reflecting their resilience and the economic challenges that necessitate strategic management and cost-cutting measures.