2010 has been tougher on small businesses than expected Outlook for 2011 remains subdued as SMEs fear decline in sales and cash flow

By Claire West

For Small and Medium-sized Enterprises (SMEs) hopes of a busy Christmas period are low, according to Aviva's bi-annual SME Pulse.

Nearly half of all SMEs surveyed (45%) said they expect Christmas to be difficult as consumers curb spending, with 10% predicting that it will be 'make or break' for their business and less than 20% expecting good sales. In addition, over a third of SMEs (40%) said that 2010 had been tougher than they envisioned at the start of the year, compared with 23% who believe it has been better than expected.

The research also revealed that three out of five small business owners surveyed (61%) expect conditions to 'remain difficult' in 2011 and almost a third (30%) believe there is a 'real risk' of a double dip recession, with 11% saying that without a change in business conditions, they will cease trading. By contrast, only 17% were optimistic that the economy will improve next year. These findings are almost identical to those from research conducted by Aviva in April 20102 indicating that the majority of SME owners remain downbeat about economic recovery.

Key concerns for SMEs

Findings since Aviva's last SME Pulse in April 2010:

• Employment remains tough, with an increase in the proportion of SMEs reducing staff pay or hours from 11% to 17%

• Similarly, the proportion reducing temporary staff numbers has shot up from 6% to 16%, and the number reducing permanent staff has increased from 8% to 12%

• Maintaining cash flow tops the list of SME concerns for 2011 with 33% stating that this is their biggest worry, rising to 36% for those in the professional services industry

• Other worries include the fear of declining sales (27%) and concerns of the consequences of any potential rise in VAT to 20% (22%).

• The biggest driver for businesses moving into 2011, as they attempt to remain in profit, is the diversifying of product lines and services, rising from 32% to 39% over the past six months

Action taken by SMEs to cope with difficult business conditions

David Bruce, commercial product manager at Aviva, comments: "Christmas is a crucial trading period, even more so with the VAT rise and government austerity measures hanging over consumer spending for the year ahead. The UK's small businesses are a resilient community but it looks as though the coming months will test them to the limit.

"This is a time for creativity, for entrepreneurial flair, and above all for good, solid business skills. Our research shows that businesses are worried about the coming months so this is a key time to plan and prepare. Revisit your business plans regularly to make sure you know how your business is performing. Make sure you keep your staff informed and look to them for inspiration. Keep yourself informed too and make use of the wealth of specialist advice that is available, both from government and private sources.

"At Aviva, we know how important advice can be so we provide our commercial customers with free access to our web portal www.cutredtape.co.uk which has a wealth of free advice, information and templates available ranging from HR, to finance, sales and marketing. If you are not a customer of ours but would like to trial this service we are offering free access for two days per user from 22 November to 31 December. Visit www.cutredtape.co.uk for more information, using the password Aviva1."

Sector and regional specific findings

The research also revealed some interesting sector-specific findings:

* Tradesmen (such as plumbers, painters, electricians) are most pessimistic about the Christmas period, with 54% expecting it to be difficult.

* Companies in Yorkshire (60%), Greater London 52%, the North West (50%) and Northern Ireland (50%) are particularly worried about the Christmas period and expect it to be difficult as customers curb their spending.

* People working in the professional services industry (accountants, surveyors, lawyers) are most pessimistic about their business projects in 2011, with 64% saying that they expect business conditions to remain difficult.

* SMEs operating in the catering and restaurant industry are most likely to reduce staffing or pay (35%), while those operating in manufacturing are most likely to reduce prices (31%) in the coming year, to keep their businesses healthy.

* Tradesmen are the sector most fearful about an economic 'double dip' (39%).

* When we asked who expected business conditions to remain difficult in 2011 optimism for 2011 is particularly scarce in Wales (71%), the East Midlands (71%) and the East of England (67%), as well as amongst the professional offices such surveyors and restaurant (63%) and salon trades (63%).