UK small businesses face deeper crisis than Covid, study warns

A new study has revealed that over half of UK small and medium-sized business leaders believe the current economic climate is more uncertain than the height of the Covid-19 pandemic, with many fearing that just one more major cost increase could force them to close.

The findings come from the "Built for Bigger Things" report, conducted by Dext, which surveyed 500 SMB leaders nationwide. The research paints a stark picture of the pressures facing the UK's small business sector, often described as the backbone of the national economy.

Economic strain

The report details that 54% of SMB leaders now see the economic outlook as more volatile than during the pandemic. A matching number report that further significant increases in costs could result in closure. Nearly half of the respondents have faced cashflow difficulties or have turned to emergency funding in the past year, while over a quarter have had to cut staff or implement hiring freezes. Strategic planning is under severe pressure, with 53% saying planning is "virtually impossible" in the current climate.

"We're past resilience. These businesses are stuck in survival mode, and too many are close to giving up," said Sabby Gill, CEO of Dext. "Without urgent support, we risk losing a generation of entrepreneurs and the backbone of the UK economy, not just to economic pressure, but to exhaustion."

Internal challenges

The study also highlights how internal inefficiencies are worsening the crisis. Many leaders are grappling with outdated tools, high workloads, and inadequate financial planning. More than a quarter (27%) spend between 21 and 40 hours each month on financial admin - nearly a full working week lost to paperwork and processes. This burden is having a significant emotional impact: 40% describe financial admin as "soul-destroying," 38% say it drains energy for growth, and 36% admit they have lost sight of why they started their business.

Admin overload is also impacting business performance. 37% report spending more time on finance than on growth, 35% have missed opportunities as a result, and nearly half (48%) believe they would be better leaders without the financial admin burden.

Robust financial strategy remains elusive for many. Only 29% regularly model scenarios of recession, 27% revisit decisions based on new data, and just 23% undertake regular financial performance reviews.

Manual processes continue to dominate, with 58% of UK SMBs managing finances manually and just 4% fully automated. One in five leaders still manage financial matters on their own, with a further 10% relying on informal help from friends or family, despite the increasing prevalence of AI-powered solutions.

"Small businesses are being pushed to the brink by macro pressures and micro inefficiencies," added Gill. "Without time, headroom or real-time visibility, they can't lead confidently. Every day this continues, we lose growth potential."

Regional and sector variation

The survey also reveals marked regional and sectoral differences. In traditionally hard-hit sectors such as retail and hospitality, 65% of respondents say the current conditions are worse than during the pandemic. Similar sentiments are shared among arts and culture SMBs (64%).

In the Yorkshire & Humber region, 71% of leaders reported they are still prioritising growth. In Leeds, 60% said that external economic pressures have not influenced their decision-making, compared to 29% nationwide. Manchester firms appear more resilient, with just 19% having delayed or cancelled growth plans, below the UK average of 25%.

Age and experience also shape perceptions and responses. Younger leaders (25-34) are more likely to use spreadsheets and spend longer on admin than their older peers. Only 3% of the younger group are fully automated, compared to 11% among those aged 55 and over. Older leaders, however, are more concerned about the economy, with 63% stating conditions are worse than Covid, compared to just over half of younger respondents.

Larger SMBs with 100-249 employees are more likely to fear closure from a sudden cost spike, with 61% expressing this concern. Among firms with annual revenues in the GBP £50-100 million bracket, half question whether it is worth continuing at all, while priorities for work-life balance are most pronounced among the largest firms surveyed.

Newer businesses, particularly those aged 1-2 years, display early-stage fragility. The report found that 76% of these firms said planning has become impossible, and 37% have accessed emergency funding, though they are also more likely to revisit financial plans regularly, indicating some potential adaptability.

Sabby Gill concluded: "We call SMBs the lifeblood of the economy, but many are bleeding time, energy and belief. The challenge now isn't just survival, it's protecting the ambition that powers this vital sector."

Perspectives from business owners

Individual business owners provided additional context on the ground realities. Jack Cregan, co-founder of Bison Beer in Brighton & Hove, said: "Smaller, lower-margin venues don't stack up in this economy. If you don't go big, the reward just isn't worth the risk anymore." He added: "You need the right team, data and venue location or you don't survive."

David Thompson, from Spirit of Yorkshire Distillery, said: "Nobody wants to place large volume orders if a 100% tariff can land mid-shipment." He explained the need for constant adaptability: "We're nimble, but every time we try to grow, something knocks us back." He continued, "There's always opportunity but you have to fight for every inch."

Rob Hunnigher of Humdingers in London provided an account of the difficulties currently faced: "A year ago I wouldn't have dreamed of shutting any of them. Now it's survival mode." Reflecting on government policy, he said, "Frankly, as a Labour voter, I have to say with the Conservatives we were making money. With the current government, we're being squeezed dry." He added: "We're getting ready for a storm. I genuinely believe we're heading for a recession."

Mandira Sarkar of Mandira's Kitchen in Surrey outlined the multiple pressures on her business: "We're grappling with historic and recent pressures, Brexit staff shortages, the lingering impact of Covid and now soaring costs on every front." She said, "We're in hospitality, we can't just pass costs on. It's becoming impossible to survive."

Alice Brierley, founder of AB Aesthetics in Northumberland, discussed concerns arising from the cost-of-living crisis: "The cost-of-living squeeze means people aren't spending money on legitimate, safe products." She warned, "People can't afford £210 for three standard areas of botox, but they can afford £99 for these illegal, dangerous substances."