Growth mindset still strong amongst SMEs, but for how long?
Annual research indicates that a degree of confidence remains, but SMEs are cautious rather than buoyant this quarter.
Britain’s SMEs are cautiously confident of ending the year in a growth phase, although there are worrying signs that certainty is beginning to wane from the peak recorded in Q2 this year, according to quarterly research from Hitachi Capital’s British Business Barometer.
At a time when the British economy has had to react quickly to the turmoil caused by China’s drastic slowdown, this might be the first sign small businesses are beginning to feel a little less secure than they were. Although the number of SMEs looking to grow their business has increased from last year (40% compared with 36% in Q4 2014), it is a 3% decrease on the 43% of businesses who said they would aspire to grow in Q2 this year. By sector, some industries have been hit harder than others, with the research indicating sectors such as construction, manufacturing and agriculture are lacking in confidence this quarter and are cautious.
The research from Hitachi Capital’s quarterly British Business Barometer, asked 1,021 small businesses in the UK, what their business outlook was for the next three months and how these compared with 12 months ago in Q4 2014.
– The number of businesses looking to significantly expand in the next three months remains low again this quarter, although there is a slight increase on 12 months ago (4% Q4 2014 vs. 6% Q4 2015).
– The number of SMEs saying, overall growth is on the agenda (whether through significant and/or modest organic growth) has improved since 12 months ago (35% in Q4 2014 vs. 40% in Q4 2015).
– Interestingly, there has been a drop in the number of SMEs content with just staying the same – 46% compared with 48% in Q4 2014.
Concerns amongst the agricultural sector prevail for another quarter, with this sector the least optimistic for growth than any other sector. Growth aspirations are down quarter on quarter, with only 14% of businesses in the sector optimistic of any growth in the next three months, a 4% drop on the same period 12 months ago (18%). In contrast to the negativity of Q4 2014, where 11% of businesses in the sector were looking to scale down or struggle to survive, the majority of businesses in the sector now appear to be striving to stay the same instead (70% compared with 57% in Q4 2014).
Outlook within the construction sector is less optimistic this quarter, with the number of businesses saying they will grow is down 5% from 12 months ago (33% Q4 2015 vs. 38% in Q4 2014). Those looking to just stay the same has also increased significantly from 12 months ago, suggesting turmoil within the sector is changing their outlook from broadly positive to playing it safe and keeping the business steady (46% in Q4 2015 vs. 52% in Q4 2014).
Despite continuing pressure on the manufacturing sector and a weak month for the industry in September, optimism amongst the sector is still stronger than it was 12 months ago, with a 5% increase in growth compared with 12 months ago (28% in Q4 2014 vs. 33% Q4 2015). Significant expansion is not high on the agenda and has dropped considerably by 4% in Q4 2015 compared with 7% in Q4 2014.
Gavin Wraith-Carter, general manager at Hitachi Capital Business Finance, said:
“Whatever the economy holds for us all in the next three to five years, one thing is evident, there is confidence in the SME market. Although confidence is not on a par with Q2 this year, problems in the EU, the steel industry and agricultural sector in particular, will have changed the economic landscape for a significant number of Britain’s small businesses. This quarter’s more cautious attitude to growth may be a sign businesses are taking a ‘wait and see’ approach and are striving to achieve steady rather than ambitious growth. Whatever their immediate or long term plans, as a leading provider of business asset finance, at Hitachi we offer a range of financial solutions for businesses wanting to grow at their own pace.”