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Peer2Peer Finance News | October 23, 2018

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Small business confidence drops for fourth consecutive quarter

Small business confidence drops for fourth consecutive quarter
Emily Perryman

SMALL business confidence is continuing to decline, driven by surging operating costs, weak domestic growth and flagging consumer demand.

The Small Business Index (SBI), released by the Federation of Small Businesses (FSB) on Friday, stood at -2.5 in the fourth quarter of 2017 – the second negative reading recorded in the last five years.

The first negative reading of -2.9 was registered in the wake of the EU referendum.

It marks the fourth consecutive quarterly drop in the index from a year-high of +20.0 in the first quarter of 2017.

Read more: Small businesses turn to alternative finance to fund growth

Almost a third (31 per cent) of the 1,084 FSB members surveyed said they expect their performance to worsen over the next three months, while only a quarter (27 per cent) expect an improvement.

In addition, a record one in seven (14 per cent) small business owners are planning to downsize, close or sell their business over the coming three months.

Three quarters of firms (73 per cent) reported a rise in operating costs from a year ago, representing a five-year high. The increase was attributed to labour (40 per cent), utility (35 per cent) and input (33 per cent) costs.

Meanwhile, the proportion of small businesses reporting a fall in profits is at its highest since 2013 at 41 per cent.

Read more: Funding Circle: Small businesses braced for higher costs after Brexit

The domestic economy was mentioned most frequently by small firms as a barrier to achieving growth over the next 12 months. More than half (55 per cent) said they are concerned it will stifle their ambitions.

Consumer demand (34 per cent), access to appropriately skilled staff (34 per cent) and regulation (20 per cent) were also flagged as barriers to expansion.

Mike Cherry, the FSB’s national chairman, said a late payment crisis means £18bn is being withheld from small businesses across the UK, stifling investment for growth and causing thousands of firms to go bust every year.

“Equally, small firms in dozens of local authority areas are still being denied the emergency business rates support they were promised last spring. The delay may well have spelled the end for some firms left reeling by April’s bruising revaluation,” he added.

Read more: Late payments add to woes of UK’s small businesses

Cherry suggested the announcement of measures to help businesses at the Autumn Budget, including a VAT threshold freeze, an early switch in the inflation measure used to increase business rates and an end to the staircase tax could help spark a recovery in confidence.

Angus Dent, chief executive of peer-to-peer business lending platform ArchOver, suggested small businesses should respond to hard times by pushing for growth, rather than selling up.

“Wanting to avoid risk is understandable, but the best way to respond to a poor economy is often to bring in new finance and innovate through the rough patch,” he said.

Dent claimed that by taking advantage of flexible financing, small businesses could reverse their fortunes in 2018 and “get their confidence levels back on track”.

The survey also found only 13 per cent of small firms have increased their headcount this quarter – the lowest figure in a year. Only 12 per cent of small businesses said they expect to take on more employees over the coming three months.