Negativity to blame for polarising business confidence ahead of spending review, survey suggests

19 October 2010

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Some small business owners are more pessimistic about the future because they fear the impact of imminent public spending cuts, according to new research from the Forum of Private Business.

In all, 17% of businesses questioned in October's Economy Watch member panel survey are ‘pessimistic' or ‘very pessimistic', compared to July when 10% reported the same.

However, the number reporting they are ‘confident' or ‘very confident' has increased to from 35% to 40% in the same period. Some small businesses surveyed by the not-for-profit small business support and lobby group blame negativity within industry and the media for the increase in pessimism.

Most businesses are positive about the coalition government's handling of the economy, with 42% deeming it to be ‘good', 28% ‘fair' and 7% ‘excellent'. However, 8% think it is ‘poor' and 15% want to reserve judgement until after the Comprehensive Spending Review (CSR).

"There will be pain as a result of the spending cuts – including for small businesses working in the public sector – but sometimes it's true that the only thing to fear is fear itself," said the Forum's Chief Executive Phil Orford. "It is important to be positive and not just stoke the fires of pessimism. As some of our members are clearly aware, there will also be opportunities for private enterprise to step in to deliver excellent, efficient services and provide real value."

He added: "But small businesses must be given the freedom and confidence to become the catalyst for private-sector-led-recovery, and constraints on their growth should be removed.

"Measures supporting enterprise must be protected and improved. We also need a series of bold policies on tax, red tape, procurement and public sector payment as well as employment and training that embody the principles of ‘smaller, better, simpler'."

Forum member Martin Chapman of Peter Osborne Fine Wines in Oxford said the Government should listen to small businesses as well as large companies.

"The letter to the media signed by several big businesses supports the Government and says everything is rosy when in reality it's not like that," said Mr Chapman. "Big retailers have become fat in the system and they will be able to use their profits to get through the difficult times. Small business don't have the reserves of large companies, they will have to either pass on increased costs to customers or dip into what little savings they have to avoid going under."

He added: "When the cuts kick in we, as a provider of quality goods, will feel the pinch. We have to deal with declining demand whilst having to bear the increases in taxes, such as rises in duty and VAT.

"Successive governments have used this industry as a cash cow which they can plunder for additional revenue. This is short-termism by politicians who are simply thinking about the next election - they do not do enough to protect the small businesses which drive this country."

The survey's other findings are as follows:

Business priorities and needs
Almost one in five members surveyed (18%) referenced public sector cuts expected in the CSR. In all, 29% believe ‘internal business development' would help their businesses to grow, while 28% identify better business and consumer confidence and 26% a more stable economy.

The biggest priority is still increasing sales and turnover. However, the 46% who selected this was less than the 61% in July. In all, 37% said a ‘stable business environment', up from 25% in July, and 17% said reducing costs an increase from 13% in the previous survey.

Future plans include targeting new customers and sales, which was selected by 64% of respondents, followed by selling more to an existing customer base (63%), introducing new products and services (55%), improving customer satisfaction (46%), reviewing and cutting costs (39%), concentrating on cash flow (36%) and increasing exports (14%). In all, 11% of respondents are planning to remain as they are.

Financial indicators
Just under a third (31%) of respondents said the tax burden has increased. Not a single business said it has improved. Further, 44% said the cost of doing business has increased and just 2% said it has eased.

While almost a quarter of panel members (24%) have seen orders fall, 39% said they have increased and remainder report no change. Turnover is down for 25% of respondents and has increased for 41%. Profitability has fallen for 30% and increased for 32% of panel members.

While investment in machinery and equipment is balanced, with 17% reporting an increase and 19% a decrease, and the same true of investment in staff training (17% and 17% respectively, more businesses are spending on sales and marketing – in all 29% are increasing investment compared to the 8% that have cut spending.

Anticipated investment includes sales and marketing (45%), product and process development (36%), training (25%), machinery and equipment (21%) and upgrading property (13%). Almost a third (29%) expect to make no investment in their businesses.

Late payment and supply chain concerns
Instances of late payment have increased for 30% of respondents and fallen for just 7% - with some members stating that this is because they are now carrying out additional work and so sending out more invoices that are not being paid. Other ‘cash flow difficulties' are on the rise for 20% and have fallen for 10%.

Overall, 13% of respondents have concerns with both suppliers and customers, 17% with suppliers and 19% with customers alone. A total of 45% have no supply chain concerns.

Employment
Total employee numbers have increased. Some of this recruitment is seasonal with some businesses taking on temporary staff in the run up to Christmas. While the number of redundancies made by panel members has increased there are also more vacancies overall, compared to the previous survey.

Business support
Overall, around one in five respondents (18%) require external support (down from the 24% recorded in the previous survey) but of these just 7% believe it is available and 11% are concerned it might not be available. The majority (66%) require no external support.

Finance
Access to finance has deteriorated for one in five businesses surveyed (21%) and improved for just 4%. The cost of finance has largely stayed the same, with 70% believing it to be ‘affordable' or ‘very affordable'.

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Negativity to blame for polarising business confidence ahead of spending review, survey suggests

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