UK accountancy firm, Azets, which has 90 offices nationwide including in Stockport, has revealed that medium-sized businesses are more optimistic about the future than smaller firms, according to the firm’s Azets Barometer survey.

The survey, conducted in April 2024, features 353 responses from businesses across the UK out of over 2,400 from firms across Northern Europe. Responses revealed business leaders are cautiously optimistic about their expectations for the next year with respondents rating their economic prospects at 5.5 out of 10. UK businesses are among the least optimistic of the six Northern European countries surveyed, with Denmark (6.8) and Ireland (6.1) most optimistic.

The Azets Barometer also highlights a clear correlation between business size and financial confidence, and smaller firms in the UK were found to be in a slightly weaker financial position relative to their peers. Small businesses employing 10-49 people scored 6.1 out of 10, while medium-sized businesses which employ 50-249 people scored 6.8. Large companies expressed the highest levels of optimism about their own financial performance, scoring 7.3 out of 10.

According to the survey, economic and geopolitical uncertainty rank as the challenges at the forefront of businesses’ minds, at 5.8 and 5.4 out of 10 respectively. This was followed by talent recruitment and retention and regulatory compliance (both 4.9).

UK businesses show moderate confidence in talent attraction (5.6 out of 10) and retention (6.2). There is a notable difference in firm’s confidence levels between the two, with 58% of respondents expressing higher confidence in their ability to retain top talent, while only 48% indicate the same level of confidence in attracting new talent.

Asked about the main challenges relating to talent, competition from other employers ranked highest (41%), followed by a skills shortage in the labour market (39%), work-life balance considerations (36%) and compensation and benefits (34%).

Looking ahead, the UK’s business community expects turnover, profit and headcount to increase in the next 12 months, with scores ranging from 5.8 to 6.3 out of 10. Respondents to the survey also expect an increase in digitalisation, cybersecurity, and sustainability. Firms are more cautious about international trade at 5.4 out of 10, and expect a slight decrease in borrowing to fuel growth in the next 12 months, scoring 4.8.

In terms of investment intentions, the Barometer revealed that 84% of UK businesses are planning to invest in cybersecurity measures, with other priorities including digitalisation (75%), employee retention (73%), and recruitment (69%). Employee retention will receive the largest investment, with almost one-fifth of businesses (19%) planning to invest at least £50,000 and 4% committing to invest more than £250,000.

More than a quarter (27%) of medium-sized businesses which employ 50-249 people said they will make no investment in artificial intelligence (AI) over the next 12 months.

Despite these investment plans and with businesses having battled against sustained economic turbulence spanning several years, the Azets Barometer found that on average UK businesses prepare their cashflow forecast 9.4 months in advance. The most popular timeframe among UK businesses is 10-12 months in advance, with one-third (31%) of companies preparing their forecast within this range. One-fifth (21%) of businesses plan their cashflows 4-6 months in advance, while 22% engage in shorter term forecasting of up to 3 months.

When asked how much thought their organisation is giving to succession planning, 58% of UK businesses scored between 6-10, with almost half (47%) scoring 7 or higher, indicating widespread recognition of the importance of leadership and continuity. This contrasts with an average of 46% in other Northern European markets. The high scoring proportion in the UK implies that succession planning is well integrated into business’ strategic planning and positions the UK as a benchmark for effective succession planning.

Susanna Cassey (pictured), Regional Managing Director at Azets in the North-west, commented:

“It’s clear from this latest Azets Barometer survey that UK businesses are mainly optimistic about the future and mildly confident about the UK’s economic prospects. It’s sensible that businesses remain cautious and take a pragmatic approach to investments in the next 12 months, with a General Election in July creating even more uncertainty, against a backdrop of long-term economic instability.

“UK businesses are clearly prioritising investments in cyber security and people, placing a strong emphasis on fortifying their digital defences and maintaining a skilled workforce, while taking a more cautious approach towards exploring new products, industries, or markets.

“Despite more positive signs of a return to growth in the UK, it’s clear that smaller firms continue to struggle as the cost of business remains high, leading to larger, more confident organisations cutting costs and families reducing discretionary spend. It’s likely that the squeeze on smaller firms will continue for some time, which is demonstrated by businesses ranking geopolitical and economic uncertainty at the two biggest challenges over the next 12 months.

“The long-term success of businesses across the country UK on succession planning. That’s why it’s positive to see UK business leaders being proactive and putting in place plans that facilitate a smooth transition from one generation to the next. However, smaller firms would benefit from shorter-term cashflow forecasting, with most businesses taking a 10-12 month view.

“Growing businesses are at the beating heart of the UK economy, and many have the potential to scale-up their success. By taking the significant obstacles facing smaller firms and incentivising the growth of medium sized firms, we can unleash the true potential of UK businesses. At Azets, we pride ourselves on our ability to understand and meet the needs of these ambitious businesses and their owners.”