Mind The AI Gap: Why SMEs Could Risk Falling Further Behind

Many SMEs are aware of the promise of AI, but few are equipped to act. While larger companies accelerate adoption, smaller firms risk falling behind due to skills gaps, limited investment, and uncertainty about where to start.

Joe Phelan, money.co.uk business savings expert, shares insight into how SMEs can close the AI readiness gap and what’s at stake if they don’t.

As Joe explains: “AI adoption is accelerating across larger companies, leaving many small businesses at risk of losing ground. From skills gaps to strategic uncertainty, we explore what’s holding SMEs back, and what they can do to move forward."

In an era where AI is transforming how we work, compete, and innovate, many UK SMEs find themselves behind the curve.

Separate studies by the Institute of Coding and Employment Hero reveal a clear trend: despite recognising the benefits of AI, many smaller businesses are being held back by gaps in training, unclear strategies, and uncertainty about whether they can afford to invest in the right tools and support.

While these obstacles have created a clear confidence and skills gap, many small businesses recognise the challenge – they just need clearer guidance on where to start.

According to the Institute of Coding, fewer than one in three small businesses feel confident when it comes to embracing AI, with a lack of skills and training standing out as the biggest barriers. And, while most (51%) believe AI will be critical to the future of business, only a quarter believe they have the ability to implement it safely and effectively.

This hesitation is echoed in Employment Hero’s report, which found that over half of SMEs (54%) use AI tools less than once a month, while more than a third have never used them at all.

A Costly Hesitation

This hesitation is risky. According to Employment Hero[2] , businesses that have already started using AI tools like ChatGPT or Otter.ai are reporting clear benefits:

• 66% say it improves the quality of their work

• 62% feel more creative and less overwhelmed

• 57% procrastinate less

• 51% even report working fewer hours

In other words, AI can be more than just a productivity booster – it may also help improve workplace wellbeing. Yet, despite these gains, only 24% of professionals feel their organisation is meaningfully investing in AI tools or training.

For some SMEs, progress can be held back by a mix of hesitation, unclear direction, and the age-old question of where to invest limited time and money. Add to that a growing generational gap in thinking, and it’s no wonder decision-making can feel like a minefield.

According to the report, Millennials are adopting AI at speed, with 39% using it daily or several times a week, compared to just 17% of Gen X and 13% of Boomers. This gap isn’t simply about awareness or resistance – it reflects the need for clear guidance on how to use AI effectively, understanding its benefits and limitations, and being supported to integrate it confidently.

Turning Awareness Into Action

According to the Institute of Coding, 75% of SME leaders say they need clearer guidance on what AI skills will be essential in the next 3-5 years, while 59% are calling for a national AI strategy tailored to all business sizes and career levels, not just tech giants or students.

Fortunately, support is starting to emerge. The UK Government’s AI Opportunities Action Plan and TechFirst programme aim to train 7.5 million workers by 2030.

Beyond the clear opportunities, it’s important for SMEs to approach AI adoption with a level head. The potential for growth is significant, but so are the risks if security and ethics aren’t considered from the start.

That means taking steps to safeguard customer data and online systems, and making sure any AI tools reflect the business’s values and meet regulatory standards. A sensible way forward is to begin with a small, well-defined pilot project – one that allows you to test the waters, learn what works, and shape a broader strategy without rushing into a full-scale rollout.

The Bottom Line

AI isn’t just a buzzword – it’s a gamechanger. But without investment in people, processes and financial infrastructure, many SMEs risk falling behind. With training available and the right financial support in place, the moment to act isn’t somewhere down the line – it’s right now.