Small businesses battling their way back … but the fight is not over yet

2nd September 2014

Sixth annual Europe/US study of 3,500 small business owners reveals rebound in profitability – but life remains tough for the very smallest

  • Downward trend in profit reversed, but optimism not yet back to 2011 levels – 45% of respondents reported an increase in profit, ending a three-year downward trend, and nearly half of respondents (45%) had a positive outlook for the year ahead (good news but still below the level recorded three years ago).
  • Recession start-ups thriving as more women take the helm – firms founded since 2007/8 are more likely to have seen an increase in profits in the past 12 months, to have hired new staff and to be focusing on exports. Over half (56%) were started by women.
  • Size matters – bigger firms with a turnover of £5m or more are most bullish about their prospects. They are much more likely to have launched a new product or service in the past year and to have secured funding for it from a lender.
  • Biggest fear – the most widely mentioned fear this year is that firms may not be able to attract new customers, though the concern of having to pass on cost increases to customers comes a close second.
  • Average hours worked have fallen – but running your own business is not as much fun as it once was. The British and the Dutch work the shortest week on average.
    • One in three owners considering an exit – a third of small business owners are contemplating exiting their business within the next five years, with the most likely exit route being retirement.

A full copy of The Hiscox DNA of an Entrepreneur Report 2014 can be accessed at www.hiscoxdnareport.com



London (2 September 2014) - An international study published today by specialist global insurer Hiscox reveals a marked improvement in sentiment among small businesses in the past 12 months. While life remains challenging, the sixth annual Hiscox DNA of an Entrepreneur Report shows a revival in profitability, greater confidence in the year ahead and increased hiring activity.

The study is based on responses from 3,500 small business owners or partners in six countries - 1,000 from the UK and 500 each from France, Germany, the Netherlands, Spain and the US. It provides a unique insight into the mood and financial wellbeing of the small business sector.

Bronek Masojada, CEO at Hiscox, commented:

“The findings indicate that the grit and determination small business owners have shown in previous years' studies is paying off. This is particularly apparent in the performance of small firms set up during the recession, which appear to be playing a key role in driving economic recovery. This is immensely encouraging not only for small business owners, but for anyone with an interest in the small business sector – from policy-makers to academics.”

Improving trend, but varying by country

Overall, 45% of respondents reported an increase in profit, ending a three-year downward trend. This was up from a low of 35% in the previous year. Also encouragingly, more than half of businesses (56%) reported growth in new customers.

The upward trend was strongest in parts of Continental Europe. German businesses were most likely to report growth in their order book, workload (58%) or new customers (70%). In contrast, US and French business owners were least likely to have seen growth in orders (40% and 44% respectively).

There was an overall pick-up in optimism, with 45% of respondents positive about the year ahead (up from 38% the previous year). However, that was still down on 2011 and 2012 levels. Greatest optimism for the future was reported in Germany (53%), the Netherlands (52%) and the US (51%). Just under half (47%) of UK respondents were optimistic. Optimism levels picked up in Spain (where 42% of businesses were positive about the year ahead compared with just 28% the previous year), while in France only one in four (27%) felt optimistic.

Other encouraging signs include firms reporting fewer late payers among their customers, and new hiring taking place. One in six firms (18%) added staff compared with 11% in the previous year and, for the year ahead, 14% of respondents say they will be taking on new staff – up from 10% the previous year.

Recession start-ups thriving

Firms founded since the start of the recession in 2007/8 make up 38% of this year's sample. They are more likely to have seen an increase in profits (49% versus 42% for older firms), hired new staff (21% versus 15%) in the past 12 months and to plan to hire in the year ahead (17% versus 13%). In addition exports are more likely to play an important part in their business (28% versus 17%), as is the development of a new product or service (39% versus 27%). Well over half (56%) were set up by women. One in eight of all those who started a business in the past six years was previously unemployed.

Size matters, especially when it comes to financing 

The bigger firms in the study were more likely to be optimistic than the smaller ones. Nearly two-thirds (63%) of firms with between 20 and 50 employees were optimistic for the year ahead, compared with 38% of one-person businesses. There is a similar picture when firms with a turnover in excess of £1 million are compared with the smallest firms in the sample.

Businesses with a turnover of £5 million or more were much more likely to have launched a new product or service, and to have secured funding for it from a lender. They had far fewer concerns about the availability of funding for a new product or service than smaller companies in the study, suggesting lenders are still reluctant to provide the very smallest firms with expansion finance.

Biggest fears

One of the greatest concerns this year mentioned by most respondents (34%) is that the business may not be able to attract new clients. This is closely followed by the worry that they will have to pass on cost increases to customers (33%) and the concern that government will not support small businesses (31%).

This marks a shift compared with the last three years, when the prospect of a lack of government support was consistently ranked by most respondents as one of their biggest fears – good news for governments and policy-makers.

This year also saw a big increase in the number of respondents citing cyber-crime as one of their biggest fears. Overall, this was mentioned by one in eight respondents (12%) – double the previous year's 6% –and by 17% of respondents in the UK.

 

Shorter hours ... but not as much fun as it once was

Overall, small business owners estimated they work a shorter week this year, with the average falling from 41.1 hours to 40.6, the lowest figure in four years. The longest hours worked were in Germany (42.3), while British (38.7) and Dutch (39.1) respondents reported the shortest hours worked.

In a first this year, respondents were asked whether they would like to be working more or fewer hours. Just over half (52%) were content with the number of hours they were putting in, though just under a third (31%) said they would like to reduce their hours. Small business owners in France were the most likely to want to work longer hours (one in four) while those in Germany least likely (one in ten).

Flexibility over working hours and the satisfaction of controlling the direction of the business were the two most widely cited benefits of running a small business (mentioned by 49% and 45% of respondents respectively). However, in several areas respondents appear now to gain less pleasure from running their own show. 'Being happier generally' was cited as a benefit of being a small business owner by only 27% of respondents compared with 39% two years ago.

Large numbers considering an exit

One in three small business owners is considering exiting their business within the next five years. Not surprisingly, those aged 60 and over are most likely to be thinking of calling it a day (44%) but even 37% of those under 40 are considering an exit.

Retirement was cited as the most likely exit route. Almost half (49%) of those considering an exit from their business expect to retire, folding the business when they go. However, a substantial proportion (37%) of those considering an exit are looking for either an outright or partial sale, with the latter option most favoured by younger respondents. Only 2% expect to cash in with a stock market flotation – though the proportion rises to 16% for businesses with a turnover of £5 million or more.

-ENDS-

 

For further information please contact:

Hiscox Ltd

Lucy Hensher                               +44 (0) 20 7448 6619                              [email protected]

Caroline Cecil                               +44 (0) 20 7610 4110                              [email protected]

 

Notes to editors

A full copy of The Hiscox DNA of an Entrepreneur Report 2014 can be accessed at www.hiscoxdnareport.com

The Hiscox DNA of an Entrepreneur Report 2014 examines the attitudes and behaviours of small business owners annually. Conducted for Hiscox by The Survey Shop, the findings are based on responses from 3,500 owners or partners in businesses with fewer than 50 employees (1,000 respondents from the UK and 500 from each of the following countries: France, Germany, the Netherlands, Spain and the US).

The sample was drawn from online panels contacted between 28th May and 6th June 2014. There is statistical accuracy of +/- 1% to +/- 2% for the whole sample of 3,500 and +/- 2% to +/- 4% for each country’s sample, except the UK which is +/- 1% to +/- 3%. Some figures may not add up to 100% due to rounding.

About Hiscox

Hiscox, the international specialist insurer, is headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). There are three main underwriting divisions in the Group - Hiscox Retail (which includes Hiscox UK and Europe, Hiscox Guernsey, Hiscox USA and subsidiary brand, DirectAsia), Hiscox London Market and Hiscox Re. Through its retail businesses in the UK, Europe and the US Hiscox offers a range of specialist insurance for professionals and business customers, as well as homeowners. Hiscox underwrites internationally traded, bigger ticket business and reinsurance through Hiscox London Market and Hiscox Re.

For further information visit www.hiscoxgroup.com.


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