10 percent of all small business owners have seriously considered either selling their business or closing it down. Image courtesy of: Bridget McGill/iStock
More than one in ten (11 percent) British small and medium-sized businesses (SMEs) say they have considered closing down in the last three months as a possible impact of the current economic situation, according to a new SME Risk Index from global insurer Zurich.
The majority (84 percent) of SME decision makers are fairly/very concerned about the UK’s current economic climate, with 38 percent very concerned. A further 84 percent say they are not confident that the economic situation will improve in the next quarter, and more than two thirds (69 percent) are still not confident when looking ahead to next year.
If the 11 percent figure for those who have thought about shutting up shop is stretched across the UK's 4.5 million SMEs, it paints a gloomy picture of their current business confidence. In the North, 17 percent of SMEs have considered closing down, compared with just 5 percent in the Midlands, 7 percent in London and 12 percent in the South overall. This further highlights the differing states of the economy in the North relative to the South.
This is Zurich’s first quarterly SME Risk Index, undertaken by YouGov, which provides valuable insight into how Britain’s SMEs are reacting to the current economic climate, with some taking radical action in order to survive.
Despite the gloomy outlook, Britain’s SMEs are starting to fight back with many actively reviewing their business models and looking for new opportunities. When asked which three things they currently see as the biggest opportunity for their business, business innovation came out top (33 percent), followed by cost and expense reduction (30 percent) and exploring web-trading and online marketing (22 percent). Furthermore, in the last three months over half (58 percent) have expanded activity to target new customers and one-third (33 percent) have diversified their business offering.
The uncertainty and instability within the Eurozone is adding to the pressure. Nearly half (47 percent) of SME decision makers believe the Eurozone crisis will hit UK consumer confidence and spending, with a knock-on, detrimental impact on Britain’s SMEs. 41 percent of SME decision makers say that, if their business was seeking more finance, they would be likely to use investment of the owners/ partners’ personal capital to finance their businesses. Combined with the recent, excessive rainfall, which has had a detrimental impact on nearly a third (31 percent) of SME businesses, this vital pillar of the UK economy is under real pressure.
Encouragingly, despite Eurozone concerns, the SME Risk Index shows that 22 percent of British SMEs are looking to expand overseas through low-cost and virtual models, such as web-trading and internet sales, overseas joint ventures and overseas distribution partnerships. Only 10 percent plan to increase their physical presence overseas.
Richard Coleman, Director of SME, Zurich, comments: “It is clear that SMEs are feeling the strain of an uncertain economic environment. Our research shows their confidence has been hit and they are concerned about the future.
“While it’s encouraging that SMEs are looking for new opportunities to ease the pressure, there are considerable risks associated with development and expansion, particularly when owners are using personal capital to fund such activity.
“This makes it vitally important that SMEs have a complete understanding of the risks present in such a fragile environment, and are fully capable of taking the appropriate steps to mitigate this risk and minimise the impact of external pressures.”
Zurich’s new SME Risk Index will be released quarterly and tracks SME sentiment and outlook across a range of critical risks and developing challenges, including the economy, growth, funding, severe weather, technology, and Government policy and regulation.