Leisure & hospitality sector – small business outlook:
A snapshot over time from Novuna Business Finance
As UK small business confidence enjoyed an election bounce following the election of a new Government in July 2024, small business owners in the leisure and hospitality sector were a little more concerned about the future – and growth forecasts in this sector remained flat. As summer moved into autumn, enterprises in the leisure and hospitality sector were most concerned about potential negative impacts from the Autumn Budget (87%). Their concerns mirrored their exposure to economic shocks that could destabilise the sector’s relatively fragile business confidence.
Top Autumn Budget concerns:
- Rising VAT – 49%
- Employer’s NI – 40%
- Changes to zero hours contracts – 19%
- Employees getting parental leave and statutory sick pay from day one of a new job – 18%
The sensitivity of small businesses to policy changes can be understood by remembering how the sector was almost destroyed by the social restrictions of the Covid era – and at its lowest point, only 7% of leisure and hospitality small businesses predicted growth during the first national lockdown, the lowest of any industry sector.
Resilience and rebuilding: 2024-5
Three years on from Covid restrictions finally ending and one in four small businesses in the sector predict growth for Q1 2025. 2024 was the year when growth forecasts for the sector returned to a position of upturn and stability although the sector still trails the national average – a sign of the challenges many small businesses still face.
Percentage of leisure and hospitality businesses that predict growth over time
|
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
|
|
Hosp |
24% |
30% |
30% |
31% |
25% |
|
UK Av. |
33% |
30% |
35% |
35% |
33% |
Working on growth for 2025
Whilst the actual growth forecasts for small businesses in the sector are lower than the national average, the resolve to build future growth is strong. The sector has seen a significant jump since January 2024 regarding the percentage of small businesses working on new growth initiatives for the quarter ahead – up from 63% to 81%. The figure for leisure and hospitality is also well above the Q1 2025 national average (71%).
Top sector projects to power growth in Q1 2025
- Keeping fixed costs down -71%
- Improving cash flow -33%
- Reassessing finance commitments -18%
- Investing in new equipment -16%
- Being stricter with getting paid on time (e.g. from clients)-15%
Whilst fixed costs remain the key issue, there has been an upturn this year in the percentage of small businesses reassessing their finance commitments and also looking for funding to invest in new equipment.
The long-term picture
Looking beyond Q1, 83% of small businesses in the leisure sector are also working on long term projects that will make them stronger and more resilient for the long-term:
- Increasing new business income/ sales – 45%
- Reducing fixed costs – 36%
- Planning ahead with business budgeting – 23%
- Diversifying the business, offering new service lines/ product – 21%
Joanna Morris, Head of Insight at Novuna Business Finance comments on 2025 market overview: “The final months of 2024 were to some extent a tale of two elections – and both had an impact on small business confidence. As the new Labour Government took office in July 2024, our research indicated an immediate election bounce in small business confidence. However this uplift was tempered a few months later, when 86% of UK small business owners expressed fears on what they thought could be on the way in the Autumn Budget. Topping the long list of concerns was the prospect of employer’s national insurance hikes (49%), rises to VAT (48%) and income tax (50%). Added to this, more than seven in 10 small businesses (77%) said they are fearful that policies from the new US administration could have a ripple effect on the outlook for UK small businesses. The most significant concerns included the possibility of tariffs on UK exports to the USA (43%) and fresh uncertainty around the UK’s trading position in the world – with 30% fearing a weakening of the UK’s special relationship with the US and 29% concerned about the UK now finding itself.”
“All this is context, but our research of small business owners spanning 11 years tells us that their growth forecasts are, so often, heavily rooted in the prevailing economic context – and how this shapes confidence, stability and a sense of certainty.”
“It is therefore perhaps unsurprising that, as 2025 started, the percentage of UK small business owners predicting growth had dipped to a nine-month low. Whilst the percentage of small businesses predicting growth for the three months ahead (to 31 March) had fallen back to 33% – the Q1 2025 data also indicates a four-year high in the percentage of small businesses saying they will scale down or contract (13%). In addition, the percentage of enterprises that fear closure has hit a two-year peak (8%). For those forecasting contraction, Q1 2025 is the first time in five quarters that the figure has exceeded single digits.”
“These findings are all from The Business Barometer study, which has tracked small business growth outlook every quarter since 2015. The latest data suggests a mood of caution offset by a deep resilience. Ever since Brexit and Covid, small businesses have responded to short-term challenges with resilience and by investing in new initiatives to power future growth. And already, we are seeing this for 2025.”
“At Novuna Business Finance, we are committed to supporting established small businesses across a range of sectors with flexible funding solutions. To help small businesses fulfil their true potential we also need to stop and listen. The Business Barometer study has proven to be a helpful resource to give us a glimpse into the minds of small business owners – how they plan, how they grow and how they react to the world events and issues that shape their market, present challenges and allow for opportunities.”