The latest Federation of Small Businesses (FSB) Small Business Index (SBI) has been published and it paints a less than optimistic picture.
Small businesses are citing surging operating costs, weak domestic growth and flagging consumer demand as reasons for the gloomy outlook.
The SBI stands at -2.5 in Q4 20171 marking a fourth consecutive quarterly drop in the Index from a year-high of +20.0 in Q1 2017.Almost a third (31%) of firms expect their performance to worsen over the next three months while a quarter (27%) expect an improvement. This is only the second negative reading recorded in the last five years. The first (-2.9) was registered in the wake of the EU referendum.
- One in seven (14%) small business owners reported that they are planning to downsize, close or sell their business over the coming three months.
- Three quarters of firms (73%) report a rise in operating costs compared to this time last year.
- The proportion of small businesses (41%) reporting a fall in profits is at its highest since 2013.
- The domestic economy is mentioned most frequently by small firms as a barrier to achieving growth over the next 12 months. More than half (55%) are concerned it will stifle their ambitions.
- Consumer demand (34%), access to appropriately skilled staff (34%) and regulation (20%) are also frequently flagged as barriers to expansion.
- Only one in ten (13%) small firms have increased their headcount this quarter. The figure is at its lowest in a year. An even smaller proportion (12%) of small businesses expect to take on more employees over the coming three months.
- Pessimism among small firms is particularly pronounced in the retail (-13%) and construction (3%) industries. Across both sectors, businesses report significantly lower levels of confidence compared to Q4 2016.Conversely, exporting small firms remain optimistic about their prospects. The proportion reporting that international sales are stable or increasing (77%) is up 4 percentage points compared to the same period two years ago, having been high throughout 2017.
Mike Cherry, FSB National Chairman, highlighted a number of areas where the governement could improve the picture and better support SMEs:
- A swift agreement of a transitional arrangement and an ambitious free trade agreement with the EU are absolutely critical.
- Changing the late payments culture, which is responsible for stifling investment for growth and which causes thousands of firms to go bust every year.
- Swiftly resolving issues around emergency business rates support.
- The Government must make good on its manifesto commitment to implement a National Insurance Holiday for firms that give opportunities to the long-term unemployed, ex-military personnel and people with disabilities.
Commenting on the report Mike Cherry continued: “Our exporters continue to benefit from a depreciated pound and strong economic growth overseas. Nine in ten small firms that do business internationally trade with EU nations, so securing the right Brexit deal will be critical to maintaining their momentum. Many also want to see new agreements struck with key markets beyond the Continent, not least the US, Australia and China.”
“Retailers and construction firms are disproportionately feeling the inflationary squeeze. As labour intensive industries, firms in these sectors will be hit hard by increases in auto-enrolment contributions from April.”
“With employment levels at near record-highs, we need to start reaching out to those furthest from the labour market.”