One thing I learnt when operating my technology startup is that running a small business in the UK today feels like sailing through choppy waters. Some days the wind’s against you, other days it’s pushing you forward. 

Small firms make up over 99% of all businesses, employ 60% of the workforce, and generate nearly half of all business turnover. When small businesses struggle or thrive, the entire UK economy feels it.

Right now, we’re seeing small businesses facing serious challenges alongside genuine opportunities. While economic uncertainty and rising costs are creating real headaches, smart businesses are finding ways to adapt and capitalise on emerging trends.

The headwinds: What’s working against small businesses

1. Economic uncertainty and shaky confidence

Business confidence has hit its lowest point since 2020. Only 14% of businesses reported increased turnover in April 2025 – down from 18% just a month earlier. Meanwhile, nearly a quarter saw their revenues drop.

Economic uncertainty affects 30% of businesses. When you’re unsure about what’s coming next month, making investment decisions becomes incredibly difficult. Geopolitical tensions aren’t helping either – supply chain disruptions, energy price volatility, and political uncertainty create a perfect storm.

The ripple effect is clear: when we see businesses lacking confidence, they hold back on expansion, hiring, and innovation – exactly what the economy needs to grow.

2. Rising costs squeezing margins

More than half of all businesses expect their costs to rise, with labour expenses leading the charge. For businesses with 10+ employees, 39% cite labour costs as their biggest challenge.

But it’s not just wages. Energy prices are hitting 23% of businesses hard, raw materials are hurting 20%, and financing costs are affecting 14%. If you’re running a restaurant, your biggest expense (staff) is going up, your energy bills are climbing, and your food costs are rising too. Something’s got to give.

The accommodation and food service sector feels this most acutely, with 82% of businesses reporting challenges that impact turnover. Many are caught between raising prices and losing customers, or absorbing costs and watching margins disappear.

I’ve seen this first-hand as a customer of a local grocery store I frequent in London. Over the past few years, I’ve watched them quietly shrink portion sizes rather than raise prices, clearly trying to manage rising costs without losing regulars like myself. 

3. The late payments crisis

Nearly half of all small businesses are dealing with more late payments than 12 months ago. The domino effect is brutal – when customers pay you late, you can’t pay your suppliers on time, which means you might struggle to pay your staff.

The numbers are stark: 24% of small businesses wait up to 60 days beyond terms for payment. That’s two months of operating cash tied up waiting for money that’s already owed.

61% of small businesses say late payments are holding them back from reaching their full potential. When 28% of businesses need short-term financing just to manage cash flow because of late payments, you know the system is broken.

The tailwinds: What’s helping small businesses move forward

Despite these significant challenges, there are genuine reasons for optimism. When small businesses are able to leverage their unique position, the results can be remarkable. 

1. Green economy creating new opportunities

The green economy is opening doors that didn’t exist five years ago. Small businesses are uniquely positioned to spot these opportunities and move quickly.

The government’s recent clarification on petrol and diesel car phase-out dates has given businesses the certainty they need to plan. More than half (57%) support government grants for zero-emission vehicles, signaling real appetite for green transitions.

The beauty of being small? You can change direction quickly when you see a market gap. Which brings me to my next point:

2. SME adaptability as a superpower

Small businesses have something big corporations would kill for – agility. When markets shift, small firms can pivot in weeks, not months. They can spot local opportunities, build personal relationships with customers, and adapt services on the fly.

This adaptability shows up in the data. While overall business confidence is low, marketing firms have 40% reporting increased sales because they’ve quickly adjusted to changing client needs.

Small businesses are naturally built for uncertainty. They’re used to operating with limited resources and making quick decisions. These constraints, which might seem like disadvantages, are actually competitive advantages in volatile times.

Running my startup taught me this lesson directly. When regulatory changes hit our operations unexpectedly, we had to restructure our entire business model in weeks. Our small size meant we could pivot without layers of bureaucracy – we called an all-hands meeting, made the decision, and implemented changes the same month. That adaptability kept us alive when larger competitors were still forming committees to discuss their response.

3. Technology leveling the playing field

Technology is becoming the great equalizer. Small businesses can now access tools and capabilities that were once exclusive to large enterprises.

Payment processing is a perfect example – automated systems and direct debit can get businesses paid up to 47% faster than traditional invoicing. A third of businesses are actively changing their payment methods to tackle late payments. Another 53% are planning to introduce late fees.

Beyond payments, small businesses are automating administrative tasks, using AI for customer service, and leveraging cloud platforms for scalability. The democratization of technology means small businesses can compete on service, innovation, and relationships rather than just scale and resources.

What this means for small business owners

The landscape in 2025 is challenging but not without opportunity. The businesses that will thrive are those that acknowledge the headwinds while actively capitalising on the tailwinds.

1. Focus on cash flow management – late payments and rising costs make this critical. Implement automated payment systems, offer incentives for early payment, and don’t be afraid to charge late fees.
2. Embrace your agility – use your ability to move quickly as a competitive advantage. When you spot opportunities in the green economy or technology shifts, you can act faster than larger competitors.
3. Invest in relationships – in uncertain times, strong customer relationships become even more valuable. Personal service and local connections can command premium pricing.

The UK’s small business sector has weathered many storms before. While 2025 presents real challenges, the combination of technological tools, green economy opportunities, and inherent small business adaptability creates a pathway forward for those willing to navigate both the headwinds and tailwinds strategically.

At Norte Partners, we are all about preserving the legacy of small businesses and supporting them to grow into the future. If you are a small business owner or an advisor thinking about succession, get in touch – we’d love to chat.

References:

BCC Quarterly Economic Survey Q1 2025: https://www.britishchambers.org.uk/wp-content/uploads/2025/04/QES_infosheet_Q1_2025.pdf !

FSB Net Zero Report May 2025: https://issuu.com/federationofsmallbusinesses/docs/fsb_net_zero_report_may_2025 

FSB Late Payments Report 2025: https://gocardless.com/blog/gocardless-fsb-late-payments-report-2025/ 

ONS Business Insights and Impact on the UK Economy (May 2025): https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/businessinsightsandimpactontheukeconomy/22may2025