Written by Adnan Essa
Posted on 14/05/2013

Recession has led to a shift in risk-management behaviour amongst SMEs, according to Zurich

8 reads

The past five years of economic stagnation and volatility have forced UK SMEs to significantly adapt their attitude and approach to risk. As a result a clear division between winners and losers is emerging, according to research commissioned by Zurich.

According to the research SMEs have undertaken the biggest risk-management behaviour shift in a generation. More than half (53 per cent) of businesses now spend more time on their business strategy and risk management then they did before the financial crisis.

Managing risk is vital for a business of any size, ensuring that the risk of late payments and bad debt is kept to a minimum allows businesses to invest, grow and be secure. Conducting credit checks on a new customer or supplier allows a business to see how viable they are and put additional protective measure in place if required.

Using one of Graydon’s risk monitoring services allows businesses to keep an eye on customers, suppliers and competitors. Clients are alerted the when changes, positive or negative, occur that may require the business’ attention.

In addition 35 per cent of firms said they are doing more long-term financial planning, and 33 per cent are scrutinising their business continuity plans more frequently. As a result SMEs have adopted a notable conservatism that raises elements of uncertainty about the long-term strength and growth prospects of the UK’s SME economy, said the report.

The past five years have eaten away at the reserves- cash, resources, morale and other mechanisms- of many SMEs. Now small businesses lack the reserves and awareness of the full longer term costs they will face in order to tackle the on-going stagnation or volatility.

Richard Coleman, Director of SME at Zurich, said, It’s great to see the increased sophistication and long term view of many SMEs but for the SME economy to drive growth, we need them to regain their appetite for controlled, calculated risk-taking. In the face of such a challenging environment however, some are understandably reluctant to do so.”

Mr Coleman added that this ‘vicious circle’ was likely to play out until either the context for risk-taking decreases for UK SMEs, or the wider economy starts to show signs of rebounding.

The research also found that confidence and performance have defined a twin track of ‘winners and losers’ in the SME economy. The 59 per cent of respondents who are confident about their business outlook have demonstrated a dramatically higher level of performance than the less confident respondents.

Amongst those who indicated that they were confident, two in five (39 per cent) reported growth with only 13 per cent indicating turnover had shrunk in the past two years. In contrast just nine per cent of less confident businesses achieved growth, with almost half (47 per cent) seeing negative growth.

Mr Coleman added, In every market and economic cycle, there exist winners and losers; a natural process of organic firm failure, mergers and business acquisition. However, there now appears to be a growing and divergent turnover gap between these winners and losers. High performers are adapting their operational business model strategy – increasing potential competitive advantages in the long-term.

“Conversely, the tactical measures of low-performers, such as freezing investment plans, which help to manage business survival today, have the unfortunate feedback loop of undercutting long-term competitive form.”

In the post-recovery economy low-performing SMEs are finding themselves at a widening disadvantage in a highly competitive market. Investing and expanding whilst managing risk could allow SMEs falling behind their competitors to gain an edge in the market.

Whilst some SMEs remain unconfident the research demonstrated that the green shoots of recovery are already emerging.