- Expert Views
UK and global SMEs largely optimistic about the future and the economy
9 February 2017 • Source: American Express
UK SMEs and smaller businesses across the world are confident about their future business performance, optimistic about the economy and believe they have the strategies in place to thrive in an age of uncertainty, according to the American Express Global SME Pulse.
The research, carried out among senior executives and decision makers in SMEs across 15 countries, reveals that SMEs are confident in their ability to deliver increased revenues and profitability. Globally, across regions as diverse as the Americas, Asia and Europe, 58% of SMEs surveyed expect significant revenue growth over the next 12 months. Reflecting this global optimism, 50% of UK SMEs surveyed anticipate revenue growth of at least 4% over the next 12 months, and of these, 16% of these look forward to revenue growth of at least 8% over the same period.
In terms of profitability, the UK’s SMEs are similarly upbeat with 57% forecasting a net profit of 4% per annum over the next three years. 22% forecast net profit in excess of 8% over the same period.
More broadly, SMEs across the globe are optimistic about the health of the world economy over the next 12 months, with SME decision-makers more than twice as likely to be positive than negative about the economic climate. Again, this positive attitude is reflected in the UK, with SME leaders in the UK almost twice as likely to be positive than negative about the state of the UK economy over the same period.
Economic and political challenges
While SMEs are optimistic about the economy and their own business, they also identify areas for concern. Economic uncertainty in their home market is seen as the largest threat to the business both globally and in the UK. Domestic political uncertainty is a further concern for 28% of UK SMEs. Meanwhile, over a third of SMEs based in the UK identify uncertainty in their European export markets as a leading threat to the business’ performance. Interestingly the survey, which was conducted after the Brexit vote, found UK SMEs are more concerned about this threat than their peers in other European markets where the proportion of SMEs seeing this as a concern ranges from 24% (Spain) to 32% (France).
Focus on expansion and sales growth
Despite this uncertainty, SMEs globally and in the UK are focusing on growth and expansion strategies to improve their financial performance. 43% of UK SMEs say expansion into new domestic markets will be a top priority for their business over the next three years, while 33% make growing their share of current markets a key focus.
Alongside these growth-focused strategies, UK SMEs will look to increase operational efficiency to help achieve their financial objectives; more than a third say this will be a key driver of their financial performance over the next three years.
Increasing exports part of the growth push
Exporting is a core pillar of many SMEs’ growth strategies globally and the UK is no exception: almost one third (32%) of UK SMEs identify expansion into new international markets as a pathway to improved financial performance over the next three years. Many UK SMEs are confident they are ready for export growth, with 47% strongly believing their company has the right plans in place to increase export sales. Furthermore, half of the SMEs surveyed in the UK agree it is easier to access new export markets than it was three years ago.
Confidence among UK SMEs about exporting is reflected in their turnover projections: the number of UK SMEs generating 50% of more of their revenues from exports will more than double, from 21% today to 44% over the next three years.
More diverse sources of finance to fund growth
Many UK SMEs struggle to finance the investment required for growth. Well over half say they face difficulty accessing the finance they need to grow their business while a sizeable 60% say that inadequate cash flow affects their ability to pay suppliers on time.
UK SMEs today rely on existing working capital (54%), bank loans (48%) and private equity (37%) to fund their investment. Over the next year, SMEs plan to continue to take advantage of a diverse set of funding options. Their existing top options will remain important, but many SMEs will also be looking to non-bank sources of financem, such as crowdsourcing and cards, to gain access to capital.
Look beyond the short term
As part of the research, top managers in UK SMEs were asked about the long-term goals of the business. While profit margin growth and revenue growth are identified as the number one and two objectives respectively, over a quarter (28%) of UK SMEs state that sustaining the business for future generations is an important long-term goal. SMEs in the UK are more likely to take this long-term view than SMEs in the rest of the world (23% of respondents outside Europe ranked sustaining the business for future generations as a top objective) which demonstrates the important contribution these businesses make to the UK’s economy.
Commenting on the findings of the research, Jose Carvalho, Senior Vice President, Global Commercial Payments Europe at American Express, said: “It’s very encouraging to see this evidence of optimism and self-confidence among UK Small and Medium-sized enterprises. Businesses are deftly navigating through challenges and this resilience is helping them to thrive.
“The research shows SMEs are focusing on expansion and growth opportunities, reaching out to new markets and customers at home and globally. However, it’s clear these enterprising businesses often find it difficult to access the finance they need to invest, and as a result they’re looking beyond traditional sources to secure funds to enable them to thrive and grow in the long term.”