SMEs face crisis of confidence

Article date: 12 July 2011

  • Only 13% foresee economic improvement in 2011
  • One in 10 SMEs could go under if trading conditions fail to improve
  • Shops and salons struggling, restaurateurs’ outlook has improved
  • Almost one quarter of SMEs have reduced prices in last six months

Almost one in 10 (9%) Small and Medium-sized Enterprises (SMEs) admit that they could go out of business if trading conditions fail to improve in the coming months, according to the latest bi-annual SME Pulse from Aviva1.

The Aviva Pulse identifies that confidence among SMEs in 2011 is lower than ever. When questioned, only 13% of SMEs thought the UK economy would see any sign of improvement in 2011, leaving the vast majority predicting difficult days ahead. This represents a 5% drop since autumn 2010, when 18% believed the economy would start to improve in early 2011.

Over one third (37%) have found trading conditions tougher than they expected so far this year, a trend that has continued from autumn 2010, when 39% experienced similar trading conditions2. This figure increases to 43% among owners of shops and salons, the highest of any other business type.

SME optimism

SME optimism

More than one quarter (28%) of SMEs questioned still believe there is a real danger of a double-dip recession - and this has not changed since last autumn. 

On a more positive note, over a third (35%) of restaurants have actually found conditions easier than expected in 2011, the highest of any business type. This is markedly up from 2010, when just 21% expressed such optimism in this sector.

It is evident from the research that the summer months will provide a vitally important trading period for SME’s, with 28% predicting a difficult summer. Furthermore, 6% claim this period alone will determine whether they can continue to do business into the rest of the year.

SMEs taking action to combat tough conditions

The Aviva Pulse also identifies some positive and proactive steps being taken by SMEs to combat the prolonged difficult business conditions. The table below outlines the additional steps that SMEs believe they need to take in order to keep their businesses healthy.

Key steps SMEs are looking to take  in the future to keep their businesses healthy

%

Diversify business by offering new products or targeting new audiences

21%

Put on more sales/discounts

17%

Reduce prices

17%

Reduce staff hours/pay/overtime/benefits

14%

Reduce temporary staff

11%

Reduce permanent staff

9%

In terms of steps that have already been taken, almost one quarter (24%) of those surveyed have reduced prices in the last six months - and one in five have recently diversified their businesses, either by offering new products or targeting a new audience.

David Bruce, commercial product manager at Aviva comments: “It is evident that the tough trading conditions we saw last year have continued into 2011. Confidence among SMEs is as low as it has been since the onset of the recession and many feel they are in real danger of losing their businesses should the economy fail to improve this year.

“The recent spate of failures on the high street confirms that the consumer-facing economy is feeling a particular squeeze at the moment as discretionary spending falls.

“Despite this, it’s heartening to see an improvement in sentiment from restaurateurs compared to last year.

“Looking ahead, there seems to be little change in the tactics that will be employed by small business owners to improve trading – we can expect further discounting, increased efforts to diversify into new product and service lines, and regrettably a reduction in staff numbers.” 

Although confidence about having the right insurance policy in place has recently improved (in autumn 2010, 16% were "very confident" and 43% "fairly confident" - this has now risen to 20% and 53% respectively), there are still those who do not give the issue the attention that it warrants.

Remarkably, 9% of SMEs admitted that they never review the insurance policy in place for their business and 8% admitted they don’t have any business insurance cover - though this is down from autumn figure of 15%.

David Bruce continued: “It is encouraging to see the number of businesses with insurance going up as this suggests they are becoming more aware of its importance however, this still leaves too many tempting fate.

“As businesses struggle against a difficult economic tide it is only prudent they protect their interests. The day-to-day running of the business can seem like enough of a challenge but it would be nothing compared to recovering from a major event, such as a fire or flood.  How many businesses have sufficient funds to pay all of the costs associated with getting back to normal – costs such as repairing the premises, paying staff and maintaining orders, themselves?

“What is more, there is no need to be an expert on this matter or spend hours on it. The advice is simple - if in doubt speak to a broker. They can help you ensure you have the right cover and help you with advice on risk management which could help you avoid or limit the impact of a major event.”

-ends-

Media contacts:

David Chambers
david.chambers@hillandknowlton.com
0207 413 3155

Sally Richards
sally.richards@aviva.co.uk
01603 684225/07789 270677 

Notes to editors:

1 Research conducted online by Redshift Research on behalf of Aviva, with 500 SME owners in June 2011

2 Aviva conducted similar online research with 500 SME owners in September 2010. The research was again conducted by Redshift Research on behalf of Aviva.

Aviva is the world’s sixth largest* insurance group. We provide more than 53 million customers with insurance, savings and investment products with total worldwide sales in 2010 of £47.1 billion**.

We are the UK’s largest insurer with 19 million customers and one in three households has a relationship with us. Our combination of life, health and general insurance is unique in its scale and breadth in the UK market. Customers can choose to buy our products through intermediaries, our corporate partners or from Aviva direct and we have become the partner of choice for many of the UK’s biggest organisations. 

We are ranked as one of the UK’s top 10 most valuable brands and Aviva plc are in the top 10% of socially responsible companies globally in the Dow Jones Sustainability World Index. In 2010 we invested £4.3m into our communities in the UK, which included 1,500 Aviva volunteers giving 24,000 hours for good causes. In addition, our employees gave £600,000 through fundraising and donating. Read our corporate responsibility report at www.aviva.com/2010cr.

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* based on gross worldwide premiums at 31 December 2009.
** at 31 December 2010.

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