The COVID-19 pandemic and recent financial turbulence has significantly impacted small businesses, leading to a challenging economic environment. This impact is hitting microbusinesses hardest. These are businesses with 10 employees or fewer.
Micro businesses represent 96% of all businesses in the private sector in the UK. A recent report reveals that nearly 630,000 UK microbusinesses fear they will have to close down due to rising costs, with the cost of living crisis being the most significant challenge faced.
The report highlights that if the 12% of micro businesses under threat actually do close, it would wipe £12bn from the economy.
“Microbusinesses play a vital role in the economy, and their closure can have significant consequences,” explains Mike Needham from finance startup, Doddler.
“They are active employers, and their closure could lead to significant job losses. Additionally, microbusinesses often operate in niche markets, providing goods and services that are not offered by larger corporations. When micro businesses close, it reduces competition, which can lead to increased prices and reduced consumer choice.”
“Micro businesses are also often an essential part of the local community, providing goods and services that meet local needs. When small businesses close, it can lead to a reduction in community cohesion and have a negative impact on the quality of life in the area. Therefore, it is crucial to support microbusinesses, particularly during challenging times, to ensure their long-term viability and success.”
A worrying finding of the study is that the cost of living crisis is disproportionately affecting micro businesses owned by racial minorities such as Black and Asian people. This highlights the need for more equitable policies and support.
Racial minority business owners may be struggling more due to a variety of systemic and social factors. One significant factor is discrimination, which can limit opportunities for racial minorities in various ways such as difficulty accessing financing, lack of access to resources, lack of mentors who understand their unique struggles, and lower levels of trust from potential customers.
The impact of the cost of living crisis on microbusinesses is also significant, with over three-quarters of owners stating that it is the most significant challenge they have ever faced, with the price of energy being the biggest single concern.
The report notes that only 42% of micro business owners are seeking support in the form of tax incentives and broader business support, including technical assistance for business development and digital strategy. Only a fifth of micro business owners believe the government is doing enough to support them.
The report’s findings indicate a need for more substantial support from the government to help micro businesses survive in this challenging economic climate. The cost of living crisis has made it challenging for small businesses to cover essential expenses, including rent, utilities, and supplies.
The UK government has pledged to provide support to businesses struggling with energy bills by providing billions of pounds in support. However, it remains to be seen whether this support will be sufficient to prevent the closure of many micro businesses.