Tax & admin ยท 5 January 2018

Small business confidence knocked by domestic challenges

Growing costs, weak growth and low demand is putting small firms under pressure
Growing costs, weak growth and low demand is putting small firms under pressure
Confidence amongst small businesses at the start of the year has taken a significant knock, with a record one in seven owners planning either to downsize, close or sell their venture over the coming three months.

The findings of a survey, published today by the Federation of Small Businesses (FSB), will reveal increased pessimism amongst small business owners at the beginning of 2018.

Fuelled by a combination of growing operating costs, weak economic growth and flagging consumer demand, as many as a third of owners expect their firm?s performance to worsen over the next three months, while only 27 per cent anticipate an improvement.

Firms in retail and construction are having a particularly miserable time, according to the survey, with businesses in both sectors reporting significantly lower levels of confidence compared with this time last year.

Read more:?Guaranteed payment date tops cash flow wish list for small business owners

In the final three months of 2017, the Small Business Index (SBI) ? the FSB?s quarterly confidence measure of the UK?s small companies ??slipped into negative territory for only the second time in five years. The first was registered immediately after the EU referendum in summer 2016.

As the new year begins, the SBI stands at -2.5, marking a fourth consecutive quarterly drop in confidence, from a year-high of +20.0 in the first three months of 2017.

Commenting on the statistics, FSB national chairman Mike Cherry said that the record numbers of entrepreneurs seeking an exit from their business in the face of mounting challenges was troubling.

He added: ?As we progress to stage two of Brexit talks, negotiations with the EU27 are set to continue dominating the political agenda.

?While the swift agreement of a transitional arrangement and an ambitious free trade agreement with the EU are absolutely critical, it?s spiralling costs, weak growth and flagging consumer demand at home that are front of mind for small firms day-to-day.?

The survey results showed the impact of low small business confidence on firms? recruitment plans. Just 13 per cent of bosses increased their firms? headcount in the last three months ? marking the lowest level?for a year. Meanwhile, only 12 per cent of small businesses expect to hire more staff in the coming three months.

Cherry said that Britain?s late payment crisis had played a large role in why small business confidence had dropped.

He added: ?The new Small Business Commissioner must make ending this debilitating crisis his top priority.??18 billion 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.?

Exporting is one of the only areas of the economy where small business owners remain confident going into 2018. The proportion of small exporters reporting stable or increasing levels of international sales at the end of 2017 was 77 per cent ? four per cent higher than in the same period two years ago.

?Our exporters continue to benefit from a depreciated pound and strong economic growth overseas,? Cherry went on to say.

?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.?

To boost small business confidence in 2018, Cherry called on the government to deliver quickly the commitments made by the chancellor in his Autumn Budget speech.

In November, Philip Hammond promised to help businesses faced with rising costs by announcing a freeze to the VAT threshold, an end to the staircase tax and a switch to the inflation measure used to determine business rates.

Cherry said: ?These commitments need to be delivered as swiftly as possible and, in the case of the staircase tax, the Community Secretary?s Bill to reverse the unfair levy fast-tracked to protect firms that have been unexpectedly impacted.?

Read more:?A 500-word Autumn Budget 2017 summary for small business owners

New business rates calculation brought forward to 2018

Chancellor abandons the staircase tax

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.