Three quarters of small businesses (78 per cent) see the cost-of-living crisis as the biggest threat to their survival in the coming year.

But despite the focus on soaring costs, a quarter of Britain’s SMEs are ignoring their business finances for fear of discovering how bad things really are.

So says PayPal in its latest Business of Change report.

>See also: Small businesses facing 250% gas price rise

The irony is that small business owners who do grasp the nettle and take their “financial wellness” seriously, told the payments giant that they have more self-confidence (45 per cent), have saved for the future (42 per cent), and experience less stress (39 per cent).

Two thirds of Britain’s small business owners say the last two years have been the most challenging since they started their venture.

Nearly half (47 per cent) fear the next 12 months could prove even more difficult.

Although the immediate cost-of-living crisis, with the lack of consumer spending and hefty fuel price increases, is seen as the biggest threat, other challenges include maintaining a steady cash flow (29 per cent), managing their own mental health (18 per cent), and coping with the increase in cost of raw materials (17 per cent).

Sandy Ruddock, co-founder of Scarlett & Mustard, said: “Our biggest challenge has been the rising cost of raw materials but we’re reluctant to raise our prices to avoid impacting our customers – it’s a lot of pressure to deal with.”

More than half (52 per cent) of SMEs are concerned for their future, with more than a quarter of small business owners (27 per cent) saying they are not sure that they will even be in business in the next 12 months.

>See also: Nearly 500,000 small firms ‘at risk of going bust’

To keep their business afloat, SME owners are working weekends (44 per cent), going six months or more without taking a holiday (36 per cent), and a third are even working seven-day weeks on a regular basis.

The stress and worry of running a business keep nearly two thirds of SMEs (62 per cent) awake at night, leaving a third feeling alone and isolated due to there simply being too much going on in the world for them to process.

However, Sandy Ruddock of Scarlett & Mustard said that having increased sales since relaunching their website last year has helped ease some of that pressure. Eighty per cent of her sales are now being made online solely via Paypal.

Ruddock said: “It has really helped to ease some of the associated stress and I’d certainly recommend other small business owners who are feeling the strain to invest in their social media presence to drive online growth further.”

Finance wellness

This year’s PayPal Business of Change report is not all doom and gloom, however.

In fact, one in five SMEs agree that the last two years have had a positive impact on their ability to manage their financial wellbeing, with 56 per cent feeling more financially savvy, 27 per cent feeling back in control of their business, and one in five (21 per cent) feeling more empowered as a business owner since improving their financial knowledge.

Indeed, the challenges of Covid and Brexit have forced many SMEs to get on top of their finances by upskilling themselves using finance apps (31 per cent) and learning from past mistakes (53 per cent).

Twenty-nine per cent of SME owners say that achieving holistic financial wellness would enable them to take back more time for themselves, while 24 per cent would use their newfound financial health to grow their business.

Ben Ramsden, head of small and medium enterprise (SME) at PayPal, said: “Financial woes and stress can have a negative impact on health and wellness. In tough times, staying on top of their finance wellness is a vital tool for small business owners. It needs to be a priority to minimise the personal impact of running a business, which can be an isolating and challenging experience for entrepreneurs.”

PayPal surveyed 1,000 small business owners nationwide in April for its report.

Worried about the financial health of your business? SmallBusiness.co.uk has teamed up with PayPal UK to bring you the PayPal Check-In Festival, a series of webinars which aim to connect you with fellow small business owners with knowledge and expertise, offering practical advice to help better manage your financial wellbeing.