Keypoints
- Profitability falls by 8% despite lower costs
- Revenue down by 28% on an annual basis in Q1
- Overheads at small businesses decline sharply in Q1
- Small businesses continue to improve payment times
- Our Q2 2023 estimates show a contraction in revenues, but lower overheads should support profit growth
Sage Small Business Tracker
Small enterprises play a vital role in driving economic growth and fostering innovation in the ever-evolving business world. However, the first quarter of 2023 has revealed a bleak reality for these small businesses, as indicated by the findings from our collaborative Small Business Tracker in partnership with Sage and Cebr.
The report sheds light on the challenges faced by small businesses, highlighting a worrying decline in both revenue growth and profitability on a year-on-year basis. A sluggish economy marked by a cost-of-living crisis and escalating interest rates are among the multitude of factors that have contributed to this downturn in business activity.
Despite this gloomy backdrop, there is a glimmer of hope in the form of falling average overheads, which could potentially alleviate cost pressures for small enterprises. This analysis dives into the report’s key findings, examining the implications for small businesses and the broader economic landscape.
The headlines from the latest report:
The report’s key findings paint a sobering picture of the challenges faced by small businesses in Q1 2023. Despite a recent surge in profitability seen in the final quarter of 2022, the average real EBITDA of small businesses has plummeted by a substantial 8.3% year-on-year in Q1. This downturn underscores the vulnerability of these enterprises to the prevailing economic conditions, particularly in the face of rising costs and inflation.
Equally alarming is the stark contraction in revenue growth, with average real revenues for small businesses dwindling by a staggering 27.9% on an annual basis in the first quarter of 2023. Although some of this contraction can be attributed to the robust revenues witnessed in the same period the previous year, the substantial decline points to the profound impact of elevated inflation and elevated interest rates on economic activity and consumer spending.
Amidst this economic turmoil, a ray of light emerges in the form of declining average overheads. In Q1 2023, small businesses experienced a significant drop in fixed and semi-variable costs, resulting in a 16.4% decrease in average overheads. This decline provides a glimmer of hope, indicating that cost pressures for small businesses may be easing, potentially bolstered by notable reductions in energy costs.
Furthermore, the report highlights a noteworthy trend in the realm of payment times, underscoring the resilience of small businesses. Over the past four years, these enterprises have exhibited a sustained improvement in payment times, with the average number of days required to settle invoices decreasing by a commendable 16 days. This trend speaks to the adaptability and agility of small businesses in navigating challenges and optimizing their financial operations.
Conclusion
The Q1 2023 Sage Small Business Tracker paints a nuanced picture of the current state of small businesses. While economic challenges like inflation and high-interest rates have led to declines in profitability and revenue growth, there is reason for some optimism thanks to reduced overhead costs.
Throughout these changes, small businesses have shown remarkable resilience and adaptability by focusing on improving payment times. As we move into an uncertain future, it’s clear that these enterprises will need to continue innovating and adapting in order to successfully navigate the challenges ahead.
Looking ahead to Q2 2023, the report predicts that revenue may decrease further, but the possibility of lower overhead costs provides a glimmer of hope for small business profitability. Despite the significant obstacles they face, small businesses are determined to succeed and embody the entrepreneurial spirit that drives innovation and economic growth.
Further Information
Access the tracker here
For more information on the Small Business Tracker, please get in touch with Rui Cardoso.
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