More than one in 10 (11 per cent) British SMEs say they have considered closing down in the last three months as a possible impact of the current economic situation, according to a new SME Risk Index from global insurer Zurich.

The majority (84 per cent) of SME decision makers are fairly / very concerned about the UK’s current economic climate, with 38 per cent very concerned. A further 84 per cent say they are not confident that the economic situation will improve in the next quarter, and more than two thirds (69 per cent) are still not confident when looking ahead to next year.

If the 11 per cent figure for those who have thought about shutting up shop is stretched across the UK’s 4.5 million SMEs, it paints a gloomy picture of their current business confidence. In the North, 17 per cent of SMEs have considered closing down, compared with just five per cent in the Midlands, 7 per cent in London and 12 per cent in the South overall. This further highlights the differing states of the economy in the North relative to the South.

This is Zurich’s first quarterly SME Risk Index, undertaken by YouGov, which provides valuable insight into how Britain’s SMEs are reacting to the current economic climate, with some taking radical action in order to survive.

Despite the gloomy outlook, Britain’s SMEs are starting to fight back with many actively reviewing their business models and looking for new opportunities. When asked which three things they currently see as the biggest opportunity for their business, business innovation came out top (33 per cent), followed by cost and expense reduction (30 per cent) and exploring web-trading and online marketing (22 per cent). Furthermore, in the last three months over half (58 per cent) have expanded activity to target new customers and one-third (33 per cent) have diversified their business offering.

The uncertainty and instability within the Eurozone is adding to the pressure. Nearly half (47 per cent) of SME decision makers believe the Eurozone crisis will hit UK consumer confidence and spending, with a knock-on, detrimental impact on Britain’s SMEs. 41 per cent of SME decision makers say that, if their business was seeking more finance, their business is likely to use investment of the owners/ partners’ personal capital to finance their businesses. Combined with the recent, excessive rainfall, which has had a detrimental impact on nearly a third (31 per cent) of SME businesses, this vital pillar of the UK economy is under real pressure.

Encouragingly, despite Eurozone concerns, the SME Risk Index shows that 22 per cent of British SMEs are looking to expand overseas through low-cost and virtual models, such as web-trading and internet sales, overseas joint ventures and overseas distribution partnerships. Only 10 per cent plan to increase their physical presence overseas.

Richard Coleman, director of SME, Zurich, comments: 
“It is clear that SMEs are feeling the strain of an uncertain economic environment. Our research shows their confidence has been hit and they are concerned about the future.

“While it’s encouraging that SMEs are looking for new opportunities to ease the pressure, there are considerable risks associated with development and expansion, particularly when owners are using personal capital to fund such activity.

“This makes it vitally important that SMEs have a complete understanding of the risks present in such a fragile environment, and are fully capable of taking the appropriate steps to mitigate this risk and minimise the impact of external pressures.”

Zurich’s new SME Risk Index will be released quarterly and tracks SME sentiment and outlook across a range of critical risks and developing challenges, including the economy, growth, funding, severe weather, technology, and Government policy and regulation.

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