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Small business owners innovate to stay ahead in tough environment

1st August 2012 Print

Small business owners are increasingly diversifying and innovating as they look to capitalise on the busy summer of events in the UK and improve their bottom line, according to Aviva's bi-annual SME Pulse.

The numbers of SMEs putting on sales and discounts, diversifying into new areas or reducing overall prices have all increased in the last six months, with the desire to capitalise on the busy summer of sporting and other events likely to be one reason for this.

Tactic adopted by SMEs / Summer 2012 / Winter 2011/12
Reduction in prices 28% 23%
Diversified into new products and services 26% 17%
Increase in sales and discounts 20% 15%

According to the Pulse, one quarter of SMEs expect to enjoy a boost to their business from this summer's events. While businesses in London (36%) are most confident about a boost, SMEs in the Midlands, Yorkshire and the North East are similarly optimistic. Even some manufacturers (20%) and professional services (18%) SMEs expect a boost as well.

There is some concern however that the positive effects of a summer boost in trading could be short lived. Over a fifth (22%) of small business owners are concerned that the boost will lead to a worrying dip in Q3/4 revenues.

The first of the summer events, the Diamond Jubilee, delivered a boost in revenues for 27% of SMEs, with rises in revenue of up to 30% reported. One in five SMEs (19%) say they actively sought to capitalise on the Jubilee, either by introducing special offers (57% of this group), new products and services (38%) or additional promotion and advertising (35%).

Trading conditions for SMEs remain difficult

While SME owners continue to demonstrate the entrepreneurial spirit, it is also clear that trading conditions remain tough for many.

Only 6% of SMEs found trading conditions "easier than expected" during the first half of 2012, down from 22% six months ago. Meanwhile those who found trading conditions "as expected" increased from 36% to 50%, as SMEs made a more realistic assessment of their prospects.

Looking ahead, small businesses are polarised on trading for the rest of 2012. While 28% say they expect strong or improved sales in the second half, and 37% expect average sales, that leaves 20% expecting poor sales and 15% "unsure" of sales levels.

It is perhaps no surprise that the numbers of SMEs cutting permanent or temporary staff, or reducing pay/hours/benefits have all increased from six months ago. There is one positive however, with the number of SMEs concerned about cash flow declining from 37% twelve months ago to 31% today. Worries about rising costs have seen a slight increase.

David Bruce, commercial product manager at Aviva, comments: "Based on this latest data, SME owners are hanging on in there. Trading conditions clearly remain tough, while it seems many owners are perhaps being more pragmatic than optimistic in their forecasting of future revenues.

"Diversification in particular is an excellent way to protect and grow the bottom line, while efforts to capitalise on the Jubilee and summer sporting boost are other examples of this. For some SMEs, the investment has paid off, with revenues increasing markedly already this summer.

"The downside of the summer boom opportunity however, is that many SMEs are clearly worried about what will happen later in the year. Recent figures from the Office of National Statistics shows that the UK recession has deepened which adds weight to this concern. SMEs need to look at their business plans now and make sure they prepare ahead for this expected bump, even while enjoying the good times."

SMEs failing to update their insurance policies to protect themselves

While SMEs look to profit from the summer spending boom in the UK, many are putting themselves at risk by failing to update their insurance policies to match their changing business circumstances.

Around a fifth (19%) of SMEs have made temporary changes to their business to respond to this summer's calendar of events. These include increasing opening hours (37%), stock levels (35%) and taking on extra staff (32%). However, only half of these SMEs (52%) have checked with their insurance broker to see if these changes require altering their insurance policy as well.

The pattern is similar for the 13% of SMEs who have made long-term changes to their business this summer, with a larger number (66%) checking with their broker on the impact of these lasting alterations.

David Bruce continues: "Even the smallest changes to a business can affect the insurance policy that needs to be in place. Changes to stock, staffing and opening hours are just some of the examples of this.

"Insurance brokers are a fantastic resource for information on these types of issues and should be a first port of call for SMEs when they're looking to alter their business. Maintaining a relationship with these experts is key to understand the risks in the business.

"However, the survey highlighted one positive on the insurance front. For the first time in twelve months, we've seen a decline in the number of SMEs claiming not to hold any business insurance at all. Six months ago, a fifth claimed they held no insurance. Today that figure is back down to 13%. This is still far too high, but it's encouraging to see we're moving in the right direction."