SME confidence in the economy rising, despite regulatory headaches

Zurich’s SME Risk Index shows that SME confidence in the economy is on the rise. Almost half (49%) of SME decision makers are confident the economic situation will improve within the next year, compared to 34% two years ago. More than one in five (22%) now see the economic environment as one of the top three opportunities for their business, compared to 15% in January 2013.

This increased confidence reflects the latest Office of National Statistics figures, which show that the UK’s economy grew by 2.6% in 2014, the fastest pace since 2007.

However, the heavy regulatory environment is still causing headaches for SMEs across the board. The top regulatory challenges for SMEs at present are employment regulation (27%), pension legislation (20%), tax compliance (23%) and health and safety (22%). In 2012, the top challenges were employment regulations (31%), health and safety regulations (26%) and tax compliance (23%).

Moreover, despite a more optimistic economic outlook, profitability remains a serious concern. Over half (58%) of SMEs are currently concerned about their profit margins and 62% are worried about future revenue streams such as new customers and products.

Overall concern about risk amongst Britain’s small and medium businesses has fallen to its lowest level since the Zurich SME Risk Index began, down from 43.18 points in January 2013 to 39.50 points two years on (January 2015).

The overall fall in concern is the result of decreased worries across several key factors over this two year period. Most significantly, 59% of SME decision makers say their business is worried about the economic climate – a 20% drop on the figure two years ago (79% in January 2013).

Concern about market dynamics (for instance exchange rate fluctuations) have fallen from 46% down to 35% since January 2013. One quarter (25%) are now worried about supply chain exposures, down from a third (33%) two years ago, and less than a third (29%) of SME decision makers are now worried about the state of business lending, compared to 42% in January 2013.

Jason Eatock, Head of SME at Zurich, comments:
“Reviewing the Risk Index over the past two years, it’s a delight to report that SME concern about business risk is now at its lowest level since the Index began. Confidence in the economic environment, and its capacity to improve further, has dramatically improved since two years ago.

“However, while the situation is improving overall, it’s clear that regulation is still a major headache for small and medium businesses which may not have the man power to keep on top of the raft of new legislation.

“Business decision makers seeking to make the most of the better business environment and secure a firm future for their company should prioritise risk planning and identify where the legislative pain points lie for them.”

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