By Daniel Hunter

16% of British small and medium-sized businesses (SMEs) surveyed consider themselves at high risk of going out of business within the next year due to financial pressure.

This is according to the latest quarterly SME Risk Index from global insurer Zurich, and polled by YouGov, surveying over 500 senior SME decision makers.

Certain sectors appear to be particularly vulnerable: the high street’s recent woes appear to be affecting confidence, with 21% of retailers now claiming to be at high risk of going out of business, an increase from 12% in the last financial quarter. Similarly 24% of IT and telecoms-related SMEs say the same, also up from 11% in Q3, and the figure rises to a worrying 37% for construction firms, from 33% previously.

This outlook reflects a consistent view among SMEs questioned, with over three quarters of them (79%) continuing to raise concerns about the current economic climate, and 82% are not confident it will improve in the next quarter.

It is clear, however, that the SMEs becoming more adept at navigating themselves through tough times are those who look in the best shape for growth. Of those SMEs who reported increased turnover in the last year, the most common measures being undertaken in the past 2 years to balance risk and growth within this challenging economic environment include:

• Implementing tighter financial and operational governance controls (30%);
• Hiring skilled staff to manage the operational challenges (22%);
• Reviewing insurance coverage arrangements (18%)

Furthermore, many SMEs are now looking to invest — overall, 29% stated that "expansion of the business in the UK" is a top two priority for 2013 — but, according to Zurich, may potentially be held back by continuing concern about the economic outlook. When asked to pick their top 3, acquiring market share from competitors was the second largest driver of growth (35%) for those businesses that have grown in the past year. This indicates that competition in the SME economy is fierce, in addition to the greater economic challenge.

Richard Coleman, Director of SME, Zurich, comments:

“There’s no doubt that it’s still tough out there for UK SMEs, and these figures seem to indicate rising levels of concern, as increasing numbers of businesses appear at risk of succumbing to financial pressures — particularly in vulnerable sectors such as retail and construction.

“What is clear from our Risk Index results is that a key factor in surviving and achieving growth is being able to strike a careful balance between taking necessary risks on the one hand, and then overcoming and preparing for risks on the other. Getting this balance right is not easy but we urge SMEs to plan accordingly and to seek advice where possible.

“While 2013 will certainly be a challenging year for the UK economy, it is fantastic to see some SMEs already looking to expand and hire staff. With SMEs at the heart of our economy, we must make the most of these positive signs if we are to return to more stable growth patterns.”

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