The biggest threats to UK small businesses right now

And how owners are protecting their businesses against threats with the mounting pressure of the cost of living crisis

Small businesses (SMEs) currently make up an impressive 99.9% of the UK’s business population. But with 20% of SMEs failing in the first year and 60% failing in the first three - it’s clear they face a myriad of threats.

Between 2020-2021, we saw a 6.6% decrease in the number of small businesses, with the total number falling from 5.9 million to 5.5 million.

Now faced with the rising cost of living coupled with the UK’s departure from the EU, it’s even harder for SMEs to overcome the impact of external and internal threats. Consumers now have less disposable income; employees are seeking higher wages to combat the rise of inflation and there's a global shortage of materials.

To help small businesses navigate this uncertainty, we’ve explored the most common threats faced by small businesses and the impact these have on their stability.

The most common threats faced by UK small businesses

We asked small business owners how vulnerable they feel their business is to threats, which showed that a staggering 86.4% believe their business is at risk in some form.

Brexit and the ever-increasing cost of living crisis has caused difficulties for small businesses. But how exactly are problems materialising?

According to our survey, the most common threats to small businesses are as below:

Supply chain delays (32%) stand as the most common threat faced by UK SMEs and comes as a result of global shortages of materials, staff shortages and transport delays occurring at the same time as sharp spikes in demand.

The shortage of materials is a direct consequence of Brexit regulations, whilst staff shortages and transport delays have been heightened by the rising cost of living forcing SME owners to cut back on their services and reduce working hours.

Retaining uniqueness (27.1%) and changing consumer demands (26.5%) follow amongst the most common threats SMEs are currently facing.

Threats are just that until they transpire, so what impact are these having on UK small businesses?

Almost a third (29.2%) of SMEs reported a loss of profit and 27.8% reported a loss in revenue. This comes as no surprise with the rising cost of living directly resulting in supply chain instability and changing consumer demands.

Raymond Mannion, the owner of a small construction company in Northwest London, sheds light on the main threats his business has faced over the past year:

“The primary threats we have faced as a construction company are increased cost of materials and labour, alongside supply chain delays. These issues have arisen primarily as a result of Brexit which has caused a dramatic decline in the number of labourers viable to work in the UK and disrupted the trade of vital materials such as timber and screws.

In order to stabilise the profit margin, we have been forced to increase the prices passed onto customers. It is vital for those in the construction sector to find a balance between rising costs and customer satisfaction to maintain security during these tumultuous times.”

The sectors most vulnerable to threats

Now let’s take a look at which sectors are being hit the hardest. Our survey results show that the top three sectors vulnerable to threats:

  • Legal (29.3%)
  • Healthcare (25.6%)
  • Sales, media & marketing (24.4%)

But what exactly is the main cause of threat for each sector? Small businesses in the legal sector reported the following as the main threats:

  • Employee mental health (32.9%)
  • Supply chain delays (30.5%)
  • Cyber threats (29.3%)

For the healthcare industry, we found the following:

  • Supply chain delays (43.6%)
  • Employee mental health (41%)
  • Changing customer demands/retaining uniqueness (28.2%)

Our survey also found that in the sales, media and marketing industry, the top three threats consist of:

  • Supply chain delays (39.7%)
  • Changing customer demands (29.5%)
  • Obtaining talent (28.2%)

Supply chain delays, employee mental health and changing consumer demands are the most prevalent threats faced across these vulnerable sectors.

Where are small businesses most vulnerable to threats?

Vulnerability is not only determined by industry, but also by location. Our research reveals that small businesses in Birmingham, Brighton and Cardiff are the most vulnerable to threats.

We also looked at what type of threats each city is most vulnerable to. The results show that SMEs in Birmingham struggle most with obtaining talent (33.3%), employee mental health (33.3%) and supply chain delays (26.7%).

For Brighton, the top three threats include; obtaining talent (44.44%), inflation (40.7%), retaining uniqueness (37.1%) and changing customer demand (37.1%).

Lastly, Cardiff faces the most threat from supply chain delays (40.6%), employee mental health (28.1%) and changing customer demands (28.1%).

Are SMEs taking out small business insurance?

Despite 86.4% of SME owners feeling their business is vulnerable to threats, only 75% have taken out liability insurance.

According to our survey, the most popular methods of protection include backing up data (30.4%), enrolling in an employee assistance programme (26%) and encrypting important information (26%). And whilst these actions can provide some reassurance, they don’t always offer the same level of protection found in small business insurance or public liability policies.

Though it’s important not to underestimate the influence external factors can have on small businesses – owners don’t have to feel completely defenceless. From public liability to business interruption to cyber liability insurance, there are lots of small business policies that can protect you against a range of eventualities.

What are SME owners sacrificing for their business

Small business owners don’t have the same degree of fallback that large entities and corporations do. The failure of a small business comes at a high price and because of this, small business owners pour a lot of time, effort and money into keeping their business afloat.

Unfortunately, our survey shows that many SME owners are deprioritising their mental health to maintain their businesses. So much so that when asked how often they suffer from poor mental health, 68% of small business owners admitted to suffering with poor mental health and 10% of those struggling with it on a consistent basis.

Many SME owners are also deprioritising their physical wellbeing, hobbies, time with friends and family as well as travel and moving house.

The top three areas of their personal lives that SME owners neglect include:

  • Mental wellbeing (30.8%)
  • Hobbies (30%)
  • Physical wellbeing (28%)

Final thoughts and recommendations

The ripple effects of the COVID-19 pandemic, Brexit and now the cost of living crisis are bringing about major issues for small businesses. Our survey has not only shed light on the most common threats to SMEs right now but the impact of these threats, too.

It’s clear that when these risks materialise, small business owners must withstand financial loss, reputational damage, increased employee turnover and a decline in customers - amongst other consequences.

Though a lot of threats to small businesses may seem beyond control, what owners can control is how well they prepare or react to such eventualities. Taking out a comprehensive small business insurance and or public liability plan can offer you protection in the face of major world events, as well as those smaller but no less detrimental, everyday threats.

Methodology & sources

Towergate Insurance conducted a study exploring what threats small businesses in the UK are facing and the subsequent impact of these threats. 750 small business owners across the UK above the age of 18 were included in the survey. The results provide a regional sector-specific breakdown of the most prevalent and detrimental threats faced by small businesses