Small businesses form the bedrock of the UK economy. They deliver growth, drive productivity, create jobs and spark innovation. Figures even show small businesses employing up to nine people contribute 15% of the country’s total turnover, and provide more than a quarter of all jobs.
Given the vital role our small businesses play, it’s important we recognise they are also under immense pressure. The economy is rapidly digitalising and artificial intelligence (AI) is set to exponentially accelerate the pace of technology innovation. For those businesses that get it right, digitalisation will be transformative. It will empower businesses to work smarter, drive efficiencies, and build stronger connections with their customers, fuelling growth and productivity at the same time. Our research shows it could unlock an additional £77.3 billion in turnover and create 885,000 new jobs across the UK economy if all small businesses digitalised at the rate of the top 20%.
However, this potential also remains largely untapped. Bigger companies often have the resources to forge ahead with digital transformation initiatives at speed. Yet for small businesses, digitalisation and transformation can be a complex and confusing world. And many risk being left behind – perhaps overlooked by both technology providers and government departments. This is creating a growing digital divide that threatens the future prosperity of small businesses.
Understanding the digital divide
The barriers to digital transformation are time, capital and confidence. Nearly 40% of small businesses find it difficult to justify technology investments. While, more than a fifth (22%) prioritise immediate challenges over digital advancement.
Many small businesses are already under immense pressure and digitalisation can feel like another mental or financial strain. Pressing concerns like cash flow management, supply chain disruptions, and regulatory compliance demand urgent attention, meaning digital transformation can take a back seat.
Exasperating the challenge is the knowledge gap. One in five small businesses cite a lack of technical expertise as a major obstacle to achieving digitalisation. Unlike their larger cousins, these businesses don’t always have access to dedicated IT support or training resources. The prospect of learning and implementing new technologies can feel overwhelming, particularly when juggled alongside the day-to-day demands of running a business.
Charting a path forward
So what can we do to help? At the heart of supporting small businesses, is taking steps to prevent them from becoming digitally isolated.
For example, appointing a small business cabinet minister who understands and fights for small businesses would ensure they are better represented. Greater collaboration between government, small business industry groups and authorities like HMRC could help simplify regulation and create a more responsive service that supports the successful delivery of current and future regulatory changes, such as Making Tax Digital for Income Tax.
This spirit of collaboration even extends to accountants and bookkeepers, who play a valuable role as trusted advisors and mentors in the small business economy. By leveraging their expertise in financial forecasting and strategic planning, small businesses can make informed decisions about investments, such as technology.
Equally crucial is developing the skilled workforce that will power this digital transformation. At a government level, the Small Business Commissioner’s role should evolve to encompass digital skills development, supported by new tax incentives to improve access to essential training. While converting the current apprenticeship levy into a broader skills and training initiative, would encourage investment in the skills needed for tomorrow’s digital economy.
The time for action
We can all help small businesses boost digitalisation by giving them the right support to digitalise at their own pace.
Small businesses are facing an increasingly challenging economic landscape, with rising National Insurance contributions, surging energy costs, and ongoing economic uncertainty. The power of digitalisation can alleviate some of the pressure points small businesses are facing. And often the best way is to start small. Simple things like using digital tools to automate invoices or moving to digital records to simplify compliance can increase efficiency, reduce costs, help them better manage cashflow and improve competitiveness.
To ensure the UK’s smallest businesses have the tools they need to thrive in an increasingly digital world, the time has come to bridge the digital divide. With sufficient support and guidance, we can prevent digital isolation and create a more inclusive, dynamic, and prosperous business environment for all.
Alex von Schirmeister
Alex von Schirmeister ia Managing Director of Xero UK & Emerging Markets. With more than 25 years’ of senior leadership experience, Alex has led teams across Europe and Latin America in e-commerce, payments, telecommunications, FMCG and consultancy. Prior to Xero, Alex led the European operations for small business payments technology company SumUp,
