How SMEs can navigate 2025 business challenges: Top tips from ECI Partners

2024 saw unique challenges for SMEs, such as stricter regulation and sluggish economic growth, and 2025 has already brought its own set of unique business challenges. Toby Fitzherbert, Investment Director at ECI Partners, a leading mid market private equity firm, works with portfolio companies who help SMEs overcome these obstacles. Here are Fitzherbert’s top tips for SMEs on how to navigate 2025’s biggest challenges:

1. Employment costs and taxation
It’s clear that increases in the minimum wage and changes to NI contributions, plus enhanced employment rights, are increasing the burden for SMEs. At the same time, rising costs are hindering growth and limiting hiring capacity, particularly in labour-intensive sectors. However, there are government measures to make the net effect less severe than some headlines suggest. For example, the Employment Allowance has increased from £5,000 to £10,500, with the £100,000 eligibility cap removed, enabling more SMEs to reduce employer NI contributions. So, while the overall effect is net-negative, SMEs should be wary of knee-jerk reactions.

Businesses can also turn to automation and technology adoption to increase efficiency, as seen in our own portfolio, with platforms like CMap helping their customers to optimise project management and resource allocation. SMEs can also invest in their own technology, leveraging the R&D tax relief scheme, which offers the dual benefit of operational improvements and financial savings. In addition, the government’s Business Growth Service, aims to streamline and improve support for SMEs to help them navigate these financial challenges.

2. Trade barriers and supply chain disruption
The global trade landscape remains changeable. Labour shortages in logistics and rising energy costs are exacerbating supply chain challenges, while raw material shortages continue to impact production timelines and costs. This is compounded by ongoing geopolitical tensions, including the Russia-Ukraine conflict and war in the Middle East.

Shifts in US trade policy and the introduction of tariffs by the US administration could impact UK exports, creating uncertainty for SMEs reliant on international markets. Product-based SMEs selling to the US may feel the greatest impact, but broader disruptions are also expected in Europe and beyond. To mitigate risks, SMEs should diversify supply chains, source locally where feasible, and build stronger relationships with suppliers. Lessons learned from Brexit-related trade disruptions – such as contingency planning, improving demand forecasting, and investing in cybersecurity – are more relevant than ever

3. Reversal of the Work from Home trend
We entered 2025 with a growing trend toward a return to the office, with challenges such as maintaining productivity, upskilling employees, and preserving company culture being some of the driving factors.

For SMEs, this shift presents both opportunities and challenges. It is important they pursue the right office policy for their company needs, but flexibility gives SMEs a potential competitive advantage against larger companies. Other competitive advantages include prioritising culture, employee experience, and training. Solutions from companies like our portfolio company Ciphr, which acquired Avantus and Marshall to expand its focus on these areas, can help SMEs implement strategies to create a supportive and engaging work environment.

4. Rising customer service expectations
Expectations for seamless customer service continue to rise, with SMEs under increasing pressure to deliver experiences comparable to those of larger enterprises. According to McKinsey, businesses that prioritise customer experience are more likely to achieve higher growth rates.

Technology such as CRM systems, chatbots, and automation can streamline SMEs’ customer service operations, so long as automation is balanced with personalisation. For example, thousands of SMEs, ranging from vets to hairdressers, plumbers and estate agents, outsource their customer service communication to providers like Moneypenny who deliver high-quality, human-centric experiences while minimising the need to invest in headcount.

5. Cybersecurity threats
As SMEs increasingly adopt digital tools, their exposure to cybersecurity risks grows, especially with remote working. In the last year, UK businesses experienced approximately 7.8 million cybercrimes, including phishing, ransomware, and data breaches. Striking a balance between investing in cybersecurity and maintaining operational budgets will be a critical challenge for SMEs but fortunately, affordable solutions exist to improve resilience. Employee training, firewalls, and endpoint security are cost-effective measures to safeguard sensitive data. SMEs should also consider leveraging managed IT services and cyber security providers like BCN to give them additional resilience, or platforms like ISMS.online can help them to streamline implementation of ISO certifications, such as ISO 27001, to improve security standards.

Fitzherbert concludes: “While 2025 presents challenges ranging from economic pressures to digital vulnerabilities, SMEs remain uniquely resilient. By staying informed, investing strategically, and adapting to changing circumstances, they can navigate the year ahead with confidence and success”.

ENDS
About ECI

ECI is a leading private equity investor, focused on offering collaborative support to management teams. ECI prides itself on being straightforward to deal with, helping where it believes it can add value, and working in absolute alignment with management teams. This is how it has delivered such exceptional results for over 45 years.

ECI manages funds of over £2bn and invests in growth businesses valued up to £300m, investing as either a majority or a minority investor. Its growth focus is integral to how it has built its team. ECI has created the capability to support management teams on anything, from sourcing and executing acquisitions, developing market entry strategies, understanding and improving employee engagement, or ensuring tech platforms can scale as quickly as the companies they back, and much more.

ECI closed its latest fund, ECI 12, at a hard cap of £1bn, marking a 40% increase on its predecessor.