Small and medium-sized enterprises (SMEs) across Edinburgh and the Lothians are balancing resilience with significant financial pressure as a pivotal national election approaches, according to new research from Aberdein Considine LLP.

The survey, carried out by Censuswide in January on behalf of the legal firm as a follow-up to its 2025 SME Business Outlook Survey, examined business sentiment across Scotland in the run-up to the Holyrood election in May. It found that 84% of SMEs in Edinburgh and the Lothians believe there is a risk to the viability of their businesses over the next 12 months.

Rising operating costs are cited as the single biggest barrier to growth (22%), while workforce pressures continue to dominate the business agenda. More than a third (38%) of firms say staff recruitment and retention is their primary financial challenge, reflecting ongoing skills shortages across key sectors, with one hospitality business owner noting that “acute personnel shortages are not addressed by workforce policy”.

Stewart Gordon, a Corporate and Business Advisory partner in Aberdein Considine’s Edinburgh office, said: “Edinburgh and the Lothians have one of Scotland’s most dynamic SME communities, and these figures highlight that businesses are navigating the current climate cautiously. While firms continue to face pressures from rising costs and ongoing recruitment challenges, many are focusing on maintaining stability and building resilience over the next 12 months, with some growth ambitions understandably tempered in the short term.”

Despite these pressures, many businesses are continuing to invest. Four in 10 (38%) plan to invest in digital adoption and AI over the next year, while 37% intend to increase their investment in skills development. More than half (52%) say their workforce is already substantially using AI, and nearly two thirds (64%) have formal policies in place governing its use.

However, the findings highlight a stark divide between ambition and survival. While 32% of SMEs say their number one priority is growing their workforce over the next 12 months, almost the same proportion (31%) say simply “staying afloat” is their top focus.

Overall sentiment remains fairly balanced. While 43% of Edinburgh and Lothian SMEs say they are optimistic about the year ahead, this trails Glasgow (62%) and is only slightly ahead of the North-east (41%), suggesting regional disparities in confidence.

The research also points to the importance of government policy in shaping business outlook ahead of May’s election.

While 78% of businesses across Edinburgh and the Lothians believe recent measures introduced in the Scottish Budget will have a positive impact, and 92% welcome the rate relief announcement, only 53% feel the Scottish Government prioritises the needs of their business. That compares with 57% who say the same of the UK Government. This suggests that, although specific steps such as business rates relief and targeted sector support have been well received, more can be done to strengthen overall business confidence.

When asked to identify the most important steps policymakers could take locally, businesses pointed to improving conditions to stimulate inward investment (31%) and access to grant funding (31%). This might include practical steps such as strengthening investment incentives, supporting infrastructure and innovation hubs, and providing clear, more consistent funding pathways. Making grant programmes easier to access and better signposted would also help SMEs to invest, scale and innovate with greater confidence.

Stewart continued: “This year’s research gives a clear picture of what SMEs across Edinburgh and the Lothians need to thrive. Businesses are already doing the hard work by investing in digital transformation, adopting AI and upskilling their teams, but they cannot tackle rising operating costs, skills shortages, or the need to attract inward investment alone.

“As we approach the Holyrood election, this is an opportunity for all political parties to listen carefully to the priorities of the SME community and take action to alleviate their concerns and promote confidence. Targeted action on costs, workforce development, access to funding and measures to encourage inward investment will be critical to turning cautious optimism into sustained growth.”

The full survey findings can be accessed here and the report can be downloaded here.