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October 2014

1 in 5 SMEs say their business has shrunk over the past quarter, according to research from global insurer Zurich.
And a third face going out of business within the next year


More than one in five (21%) of Britain’s small and medium businesses say their business has shrunk over the last three months, despite continuing economic recovery. When looking to the future, a third (34%) of SMEs say they face a medium to high risk of going out of business within the next year.
*When asked to indicate on a scale of 1 to 5, where 1 was “Very low risk” and 5 was “Very high risk”, 34% selected 3 to 5.

The findings come from Zurich’s latest SME Risk Index. The majority (60%) of the SME decision makers surveyed say they are not confident the economic situation will improve within the next quarter, a significant 12% increase over the past three months. One quarter (25%) of the SME decision makers surveyed also said they have had to reduce prices in the last financial quarter as a result of the economic environment.

However, despite these figures, concerns about overall business risk have fallen to their lowest level since the Zurich SME Risk Index began in 2012, down from 42.17 points in July 2014 to 39.92 points this month.

This fall in concern could be the result of significantly decreased worries about a number of key factors over the last quarter. For instance, 35% of SME decision makers are now concerned about business regulation & compliance, a significant 10% drop on July 2014. Furthermore, almost a third (29%) of SMEs say that they don’t think any regulation poses a challenge to their business at the moment.

Less than one quarter (22%) are now worried about supply chain exposures, a 7% drop on July 2014. Similar to last quarter, 37% are worried about workforce challenges such as availability of talent and capacity, compared to 41% last quarter (a 4% drop).

 

Richard Coleman, Director of SME at Zurich, comments:

“It’s great to report again that SMEs are continuing to feel better about the risks their businesses face, reflecting wider signs of growth in the UK economy. However, it’s clear that the wider economic environment is a source of increasing concern for SME's even as their concerns over some of the more specific risks reduce."“With one third of SME decision makers still saying they could face going out of business within the next year, it’s clear that financial difficulties are again a key worry for Britain’s small and medium businesses.“In April 2013 previous Zurich sponsored research identified a twin track of ‘winners and losers’ in the UK’s SME economy, with business owners who were confident about their outlook demonstrating a dramatically higher level of performance than less confident respondents. This two tier approach seems to be emerging again, with a clear gap between those SMEs who are increasingly confident about the business risks they face, and the significant percentage who are still concerned about going out of business in the near future."At the time, our research also found a strong link between the winners and those that took a strategic approach to risk. Effective risk management is all about closely monitoring the risks faced to ensure strong plans are in place should an unexpected event happen. With the economy still improving in general terms, the winners will be those business owners who take control and gain peace of mind through better risk planning.”

 

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