Economy Getting Ahead July 15, 2022

Confidence Index Q2 Results: Businesses Face a Challenging Year Ahead

Every quarter, we gather data from top-performing CEOs and executives across more than 200 SMBs to form the Vistage Confidence Index. We’re pleased to present this quarter’s findings. 

The Confidence Index is a barometer of how these individuals view the current state of the economy, as well as their business prospects and profitability. It’s a great way for like-minded businesses to gain an insight into the minds of their peers.

The report’s findings are now ready to share - and this quarter’s results paint a very similar picture to the last’s. Prices continue to soar, retention rates dwindle at an increasing pace, and leaders feel ever-more pessimistic about the current economic landscape.

 

See the full report here.

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Overall Confidence

It might come as no surprise that confidence has taken a serious hit this quarter.

The confidence index currently sits at a low 77 points - a 22% decrease from the previous quarter and a whopping 45% decrease from Q2 last year.

Many factors are contributing to this huge loss in confidence. Read on to find out more about the key drivers for this.

 

Pessimism Around Current and Future Economic Conditions

Overall, our report found that small- and medium-sized businesses not only feel pessimistic about the current economic state but also expect things to get worse over the next 12 months.

A huge 69% of SME leaders believe that economic conditions have worsened significantly over the past year (up 30% from last quarter) - compared with only 10% that believe conditions have improved (down 28%).

And, what’s more, these leaders aren’t expecting conditions to improve. A significant 72% think that conditions will worsen over the next 12 months - with only a tiny 5% believing that they’ll get better.

 

The Cost of Living Crisis is Taking its Toll

The cost of living crisis is certainly taking its toll on both households and businesses all across the UK.

And with the Office of National Statistics reporting that annual consumer price inflation has reached 9.1% as of June, it’s easy to see why.

As a result, business leaders expect to see costs rising over the next 12 months, with 40% anticipating an increase in their company’s total fixed investment expenditure - up only 1% from last quarter.

These increasing costs can be attributed to various factors:

  • Increased wages and compensation (86%)
  • Increased energy prices (77%)
  • Increased prices from vendors (70%)
  • Higher costs for raw materials and other inputs (60%)
  • Change in buyer behaviours (45%)

Because of rising costs for businesses, 76% of leaders also expect to have to raise the prices of their products or services in the near future to keep up.

 

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Sales and Profitability

But it isn’t all bad news. Despite rising costs - both for businesses and consumers - more than half (53%) of leaders believe that their business’ sales revenues will increase within the next 12 months, compared to 13% that think they’ll decrease.

Opinions on profitability, on the other hand, are more of a mixed bag. Over the coming year, roughly one third (34%) of leaders expect their business’ profitability to improve, another third (35%) expect it to stay the same, and the last third (31%) expect it to worsen.

Compare this with last quarter’s results - where 64% of leaders expected an increase in sales revenue and 39% expected an improvement in profitability - we can see that businesses are losing confidence in their financial performance.

 

The Fight for Talent

Our report found that 57% of SMBs have increased headcount over the past 12 months - and, 47% plan to increase that further within the coming year.

Interestingly, this figure is down 17% from last quarter - but it still means that more than half of businesses are on the hunt for new talent.

But, in an economy where hiring is harder than ever, two in three businesses are feeling the squeeze of the labour shortage.

A sizeable 67% of leaders also say that challenges in hiring new talent are directly impacting their business’ ability to operate at full capacity.

 

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The Future of the Workplace

So, how do leaders feel about the future of the workplace?

Our survey found that just a quarter of businesses have returned fully on-site following the peak of the pandemic, with 67% of leaders finding a hybrid working model to be more attractive.

Yet, a significant 76% are either unlikely or very unlikely to adopt the four-day work week that’s gaining popularity in the media.

Although this work schedule offers far greater levels of flexibility for employees, leaders are conscious that with that increased flexibility also come various challenges. These include:

  • Collaboration (65%)
  • Culture (58%)
  • Communication (56%)

Looking Ahead

While the findings of these reports might paint a more gloomy picture than previous years, leaders and their businesses remain resilient.

As Geoff Lawrence, Vistage’s UK Managing Director, comments:

“While economic confidence continues to wane, British and Irish small and medium sized businesses remain as resilient as ever amidst record high inflation rates and labour shortages. We are seeing that many business owners require specific support as they weather the current storm and look towards growth and scalability plans.”

The next quarter will undoubtedly bring its challenges. But leaders that are ready to face them with resiliency and determination will come out stronger than ever.

Ready to succeed at a whole new level? A Vistage membership will help you grow your business in the face of your biggest challenges. Learn more here.

 

Image via adobe stock by NicoElNino

 

 

 



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