Small Businesses looking to grow and hire staff despite challenges

The Federation of Small Businesses (FSB) has published its latest, quarterly analysis of Small Business Confidence.

The FSB Small Business Index is based upon an extensive survey of sole traders, micro businesses and small and Medium Sized Enterprises.  It shows that in the West Midlands during the second quarter of this year, small businesses had strong growth and hiring aspirations.

Half of the region’s small business owners (50%) predicted that their business performance will improve in the next three months.  In addition, confidence for the next 3 months was positive in Q2 2021 (at 23%) despite showing a decline from Q1 2021 (at 39%). This compares to the negative territory confidence was in at the same time last year.

Around 20 per cent of small firms in the region expect to increase their staff numbers over the next quarter, with a smaller proportion predicting a decrease (5%).

However, small business confidence was dented by the delay in lifting restrictions and there are concerns around debt, rising costs, skills shortages and international trade disruption.  Profit expectations of West Midlands small businesses remain lower than the UK average

During Q1, there had been a predicted increase in staffing levels of 15 per cent for the following quarter. However, the employment picture amongst FSB members for Q2 showed that equal numbers of small businesses have increased and decreased their staff levels, resulting in no net change.

Nearly two thirds of small businesses surveyed (64%) said that operating costs had increased in the past quarter compared to last year, up 20 percentage points from Q1 2021. Four in ten (42%) cite inputs, such as raw materials and components, as a main contributor to this increase, up 12 percentage points on last quarter. Labour costs (36%), utilities (28%), and fuel (26%) are also frequently flagged as sources of rising outgoings as inflationary pressure takes hold.

The share of firms citing lack of access to appropriately skilled staff as a barrier to growth has soared to its highest level on record (37%), with the proportion of respondents citing it as a barrier up 18 percentage points compared to Q2 2019, before the pandemic hit. Input costs are cited as a barrier to growth by a quarter (25%) of respondents, up from 16% in Q1 2021 and just 11% in Q2 2020.

Amid mounting evidence that lockdowns have exacerbated the UK’s late payment crisis, half (54%) of respondents who successfully applied for credit in Q2 2021 did so in order to manage cash flow, up 9 percentage points compared to Q2 2019. With emergency loan schemes now closed, a third (32%) of those who applied for credit last quarter were rejected, the highest proportion since Q4 2015. Four in ten (37%) small businesses with debt now view their level of borrowing as unmanageable.

Elsewhere, new trading rules continue to be a source of pain for firms that do business internationally. Close to a quarter (23%) of exporters have stopped selling into the EU either temporarily or permanently. The overwhelming majority (92%) of importers and exporters have experienced shipping delays since April.

Nishi Mehta, FSB West Midlands Policy Representative and co-founder of CM Talent and Career-Mums CIC in Kenilworth commented: “As the region gets back to business, small firms are, in the main, well-positioned to take full advantage of the opportunities on offer to them as the economy recovers.

“However, skills shortages and rising input costs should concern us all – anything which puts the brakes on small business recovery is bad news for the economy. Recent announcements around upskilling are welcome but will not be in place rapidly enough to provide immediate relief.

“So, while confidence is overall moving in the right direction, we need to see further positive actions from both central and regional governments to energise the small business recovery further.

“With most restrictions now eased, we’re also urging everyone to respect the house rules at each business they visit, as owners strive to keep customers and staff safe.”

“Concerted action and mutual respect will be key to delivering a speedy, sustainable and safe recovery for all of us”.