Should SMEs be more cautious about increasing jobs and wages?

Improved confidence amongst small business has allowed many of them to increase recruitment efforts and offer higher salaries – but is a more cautious approach to such expansion plans needed?


According to the 2015 Small Business Index by the Federation of Small Businesses (FSB), the number of new employees hired by SMEs was twice as high in the last three months as it was one year ago.


Lower business costs and improved economic conditions – including a low inflation rate – have contributed to this trend by alleviating some of the pressure placed on firms.


This in turn has increased confidence and led many small businesses to reward existing employees with pay rises while also hiring more staff.


Accommodation and food, manufacturing, and construction industries reported the highest increases overall thanks to productivity growth but is this really the best course of action for SMEs?


Matching skills to vacancies


Despite the positive results, many SMEs still express concerns about finding the right candidates to fill job vacancies.


These skill shortages are actually hampering business’ plans to expand and 37% of companies now claim that finding someone with the right skills for their jobs is a big barrier to growth. A year ago, just 25.4% of businesses said the same.


Speaking about these challenges, John Allen – the National Chairman for the FSB – described skills shortages as “one of the few areas of concern” within a relatively positive SME environment.


“It’s crucial than new and existing small firms have appropriately skilled staff and targeted support at a local level to grow their businesses,” he said.


“Better skilled workers are critical for the UK to close the productivity gap and achieve long-term economic growth; as well as compete with other countries in the G7, such as France and Germany.”


Essentially while the increased confidence reported by SMEs is positive news for those involved it must be matched with a cautious approach towards higher recruitment and boosted wage packets.


Hiring staff that lack the necessary skills or offering pay rises without thorough analysis of business finances and budgets could leave some SMEs in hot water and even result in the need for business rescue or insolvency measures if allowed to escalate.


Small businesses should therefore ensure they have a strong grasp on all aspects of their finances before considering such action.


By Phil Smith  


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