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How small firms can afford rising wage bills

Small firms are still battling rising wage bills, and while new government reform on apprenticeships may help, the pressure remains unrelenting. How can businesses afford the costs of recruiting and retaining the talent they need?

Wage trends for SMEs and how they are reacting

Despite some relief in terms of overheads, wage bills continue to be a significant pain point for small firms. According to the latest small business tracker from Sage, wage bills for SMEs rose by 13.8% in Q4 2023, following an 11.1% increase in Q3.

As these figures suggest, the going is tough for small businesses, which are struggling to meet increased wage demands. A contraction in the labour market, combined with the cost of living crisis, has put workers in a stronger position with regard to pay.

In this face of this trend, small businesses are adapting their approach to recruitment, with greater focus being placed on attracting talent at a younger age and upskilling existing team members. Notably, more and more firms are turning to apprenticeships and work placements as part of this lower-cost, longer-term approach.

According to figures from the Skills Horizon 2024 Barometer, over half of SMEs are considering investing in school leaver schemes such as apprenticeships (53% in 2024) and work placement initiatives (60% in 2024). An even greater amount (71%) are considering offering training and employment schemes for existing staff members to plug the talent gap.

And, following the government’s decision to increase its funding of 20,000 new apprenticeships from 95% to 100% from April, interest and investment in these strategies could grow even further as small businesses look to manage rising wage costs.

Recruitment and retainment costs and how alternative lenders can help

It comes as little surprise that small firms are continuing to find it hard to find the finance to meet rising wage demands – despite some tempered optimism, market headwinds remain significant. In short, margins are thin and the pressure on cash flow is considerable.

However, businesses need talent to perform and succeed, so finding the means to invest is critical. And this is where alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks).

These alternative finance facilities, which offer a more easily accessible, affordable and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth.

This profile has helped cement the reputation of alternative finance in the business sector. According to the British Business Bank, it is alternative lenders that are increasing filling the small business funding gap, with asset finance alone rising by 7% to £23.5 billion in 2023. At the same time, a 2024 study shows that more and more SMEs are turning to alternative lenders to access larger-scale finance packages.

Small firm finance options for managing rising wage bills

It remains to be see how much the government’s new apprenticeship reform package will help, but at the moment, any assistance will be keenly accepted by small firms. Recruiting and retaining key talent remains a must despite the relentless pressure on cash flow. This is why it is essential that businesses are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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