The impact of the recent recession on the sales performance of small and medium-sized companies was more sudden and severe than that experienced in the early 1990s, but the drop in employment levels has been less dramatic, according to the Quarterly Survey of Small Business in Britain, produced by The Open University Business School (www.open.ac.uk/quarterly-survey) with support from ACCA (The Association of Chartered Certified Accountants).
The report for the fourth quarter shows a much bigger dip in SMEs’ sales performance in the recent recession, compared to that of the early 1990s. Despite this, the current economic downturn has so far had a less visible impact on employment levels in the UK’s SMEs. Since 2008, the fall in workforce jobs has been less dramatic than in the 1990s, partly supported by the growth in part-time jobs and the self-employed. With the notable exceptions of the retail and construction sectors, small firms also made a quicker initial recovery from the recession this time around, though recent evidence suggests that the growth in the sales balance appears to have stalled since the end of 2010.
In the fourth quarter, the UK’s SME’s reported a further slight decline in sales performance. With sales expectations for the next quarter at the same muted levels, there seems to be no immediate prospect of an uplift, the report states. However, there is a degree of optimism in the manufacturing sector with SMEs reporting the best sales performance, employment growth (+12%) and investment performance (+12%).
The smallest firms have suffered the most from the effects of the recession, with small construction firms reporting the most negative sales performance balances in both the recession of the 1990s (-45% in mid 1991) and the most recent (-54% in mid-2009). The construction sector also has the biggest competition problems (41%) and SMEs in this field are among those most often cutting jobs and investment.
Striking differences between the UK’s smallest firms and its medium-sized firms were revealed when the survey asked how many people they expect to employ in three years’ time. More than one fifth of the firms which are not currently employers expect to close their business within the next three years. However, relatively large firms are much more optimistic, with those currently employing 10 or more people expecting to recruit rather than cut staff.
‘Economic climate or demand’ has now been the top-ranked problem facing Britain’s small firms for four years, since the beginning of 2008. In the latest survey, almost two thirds (63%) of SMEs see it as a ‘top three’ problem (up from 55% in the previous quarter). SMEs in every region and sector report it as their most common business problem, with those in Wales (77%) and in transport & storage (70%) seeming to suffer the most. The next ranked issues are: Competition (33%), Government regulation (28%), Cashflow, payments or debtors (26%) and Inflation or cost of inputs (26%). SMEs in the hotels & restaurants sector report the most problems with input prices (36%); this sector also sees the tax burden as a particular problem (36%), reflecting the level of duty on alcoholic drinks. SMEs in Wales (44%) and Scotland (39%) more often report problems with government regulation than those in most of the English regions, with the exception of the North East (41%).
Professor James Fleck, Dean of The Open University Business School, said: “The survey shows that whilst the manufacturing sector may offer some grounds for optimism, other sectors are facing severe problems. For example, small retailers have seen sales fall continuously over the past four years and there is no immediate prospect of an uplift. We are also picking up signs of distress amongst the very smallest firms, and in those most heavily involved in supplying the public sector.”
The survey also found significant regional variations. Firms in the West Midlands are reporting the best sales performance, with net balances of +23%, closely followed by +20% in the West Midlands. SMEs in these two regions also have the highest balances for employment and investment. Whilst SMEs in Scotland report far weaker sales than the last quarter, with the balance down from +21% to +7%, in London, Wales and Yorkshire & the Humber more SMEs are reporting a negative sales turnover. SMEs in the East Midlands (46%) and West Midlands (43%) of England far more often complain of competition problems than those in the North East (14%) and North West (24%).