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Big gap between winners and losers in the UK’s SME economy

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There is no “middle” in SME: a clear division between winners and losers has emerged in small and mid-sized businesses, according to a research paper by insurer Zurich and the Economist Intelligence Unit. The gap was built by five years of economic stagnation and volatility, which have forced UK SMEs to significantly adapt their attitude to risk.

The paper, “Adapting in tough times: The growing resilience of UK SMEs” explores what it calls “the biggest risk-management behaviour shift in a generation.”

Some 53 per cent of SMEs spend more time on their business strategy and risk management than they did before the financial crisis. 35 per cent are doing more long-term financial planning, and 33 per cent are scrutinising their business continuity plans more frequently.

By doing so, SMEs have adopted a notable conservatism. Uncertainty about long-term strength and growth prospects are shaking up the sector. The past five years have put a squeeze on SMEs and many do not have the reserves – cash, resources, morale and other mechanisms – nor enough awareness of the full longer term costs they will face, in order to tackle on-going stagnation or volatility.

The research also found that confidence and performance have defined a twin track of “winners and losers” in the UK’s SME economy. The 59 per cent of respondents who are confident about their business outlook have demonstrated a dramatically higher level of performance than the less confident respondents.

For example, the most confident of those surveyed have achieved admirable growth in turnover in the past two years. Two in five report growth and only 13 per cent report shrinking turnover. But almost one-half of the less confident report shrinking turnover and just nine per cent achieved some growth — the polar opposite trend.

A vicious trend? Richard Coleman, director of SME at Zurich, advises to ensure that a balance exists between risk taking and risk prevention.

“In every market and economic cycle, there exist winners and losers; a natural process of organic firm failure, mergers and business acquisition. However, there now appears to be a growing and divergent turnover gap between these winners and losers. High performers are adapting their operational business model strategy – increasing potential competitive advantages in the long-term. Conversely, the tactical measures of low-performers, such as freezing investment plans, which help to manage business survival today, have the unfortunate feedback loop of undercutting long-term competitive form.”

“This is the potential long-term dynamic – a new post-recovery economy where low-performing SMEs find themselves at a widening disadvantage and in a market of even higher competitive intensity. The good news is that our research demonstrates the green shoots of recovery already emerging.”

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