Written by Adnan Essa
Posted on 28/08/2013

SMEs report less risk and improving confidence

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UK SMEs are becoming more confident in the economic climate and are beginning to re-invest in assets and operations as a result. Small businesses are also reporting lower risk in the market suggesting that conditions are stabilising.

According to Zurich’s SME Risk Index, SME confidence that economic conditions will improve in this financial quarter almost doubled to 38 per cent, up from the 20 per cent registered last quarter. This optimistic outlook could be linked to a decline in the perceived levels of business risk.

The Risk Index fell to 43.41 points from a high of 44.55 in the first quarter of the year. The SME Risk Index is formulated by calculating a mean score against nine different parameters, which asks how concerned management are about each of these. This creates a score between one and 100, with one being ‘no concern at all’ and 100 being ‘very concerned’.

Only 28 per cent of SME decision makers think that their business faces more risk now than in the last financial quarter, compared to the 35 per cent who said the same in Q1. In addition, 23 per cent see less risk today than a year ago, a jump from ten per cent only six months ago.

The research from Zurich is backed-up by a similar poll carried out by YouGov. YouGov’s research found that nearly two-fifths (38 per cent) of respondents feel confident that the economic situation will improve this financial quarter, compared to only one-fifth in the previous quarter.

The improving optimism has led to falling concerns in the following areas, according to Zurich: the current economic climate, the state of lending and business finances, supply chain exposures and the current market dynamics.

Despite improving conditions it is vital that firms don’t become complacent with their credit control procedures in order to manage the amount risk they are exposed to. Using Graydon’s CreditWatch, a unique risk monitoring service, ensures that businesses are always aware of critical events and receive email alerts as soon as news occurs.

More business owners also indicated that they have recently been able to invest. In the last financial quarter, 28 per cent of businesses invested in assets and operations, compared to only 19 per cent at the beginning of the year. Business growth has also improved, with 38 per cent reporting growth in the last quarter, compared to 31 per cent who said the same in Q1.

Growing and investing a business can allow firms to take advantage of emerging opportunities. Ensuring that the supply chain remains strong whilst doing so allows a firm to remain financially stable and maintain a healthy cash flow. New customers and suppliers should always be subjected to credit checks to ensure they don’t pose a threat.

Richard Coleman, Director of SME at Zurich Insurance, said. “With many official figures suggesting a return to economic growth in the whole UK economy, it is encouraging to see a shared optimism among Britain’s small and medium-sized businesses. SMEs are building in confidence and reinvesting in their business, suggesting a belief that these economic green shoots are here to stay, for the moment at least.

“A key part of being a successful small business owner is the ability to take measured risks, and this is what many SME owners are regaining the courage to do.”

The Index also revealed that decision makers are more confident that they could cope with customer losses. Less that one fifth (19 per cent) said they would need to significantly downsize if they lost their two largest customers in the next year, compared to almost a quarter (24 per cent) saying this in Q1. Becoming too reliant on a few customers and suppliers can place a business in a vulnerable position should one fail. Expanding the breadth of the supply chain enables firms to spread the risk and minimise the impact should a businesses within the network fail.

The Index indicates that the overall business environment is improving, allowing firms to invest and expand, but remaining vigilant against risks is still vital for success.