Amid the good news for business the skills gap is quietly reaching critical levels: find out why that’s terrible news for growing businesses.

Insights from recruitment firm owners reveal that the UK skills gap is widening, with a lack of suitable candidates likely to impede SME business growth and put further pressure on their cash-flow.

This skills gap is leading to a battle to attract and retain the best employees which is seeing firms either absorb increased recruitment costs in the pursuit of skilled workers or invest in staff training to develop specialisms in-house. All of this adds additional overheads to UK SME’s and their already strained cash flow position. 

Research reveals that a growing demand for skilled workers is driving an increase in contract roles, 72 per cent of recruiters report inflated demand for contract or temporary placements as opposed to permanent roles, rising to 85 per cent in London.

Skills mismatch

This problem is most pronounced in the Healthcare sector, where 92 per cent of recruiters cited a ‘skills mismatch’ as their biggest challenge, closely followed by the logistics (90 per cent) and technology industries (87 per cent).

Moving forwards, this issue is likely to intensify due to changing immigration legislation; from 2016, non-European Economic Area workers will need to earn over £35,000 in order to settle in the UK for longer than six years. 72 per cent of recruiters predict that this will have a detrimental effect on business, by reducing the number of available, skilled candidates.

As the dichotomy between supply and demand in the UK job market continues to widen, employers will likely become more dependent on specialist recruitment agencies to source skilled workers. This skills shortage is likely to increase staff turnover leading to uncertainty when it comes to business growth, as well as higher recruitment costs.

Businesses must therefore work to increase employee retention and focus on refining methods to attract suitable candidates. However, to ensure these increased costs don’t negatively affect their business they must also work to strengthen their cash position, so as to allow them to invest in recruitment and pursue new contract opportunities.

Hindering investment

Failing to do so could leave businesses unable to fill vacancies and negatively affect business operations, with no money to invest.

Changes to immigration guidelines will also have a huge impact, especially within the healthcare sector, which currently relies on thousands of nurses who fall below the £35,000 salary threshold required for an extended UK work permit.

These market conditions should be favourable to those operating recruitment agencies so there is a huge opportunity for recruitment sector growth, potentially in the form of new start-ups companies. However, it is worth noting that 38% of recruiters reported that cash flow was their biggest challenge when starting out and 30% cited poor cash flow as the reason that most recruitment firms fail.

In order to prepare themselves for an increase in demand, recruitment firms should invest in back office technology and work to secure cash flow now. Our research shows that high value, fast turn-around contract roles are increasing in popularity, the most financially stable and agile firms will benefit most.

John Atkinson is head of commercial business at Hitachi Capital Invoice Finance