How confident are you in the prospects for the economy, for your business and for your expansion plans over the coming months and years?
In the quarterly Vistage CEO Confidence Index, which began back in 2003, we track the opinions and projections of SME CEOs and other key executives as a barometer of the UK SME sector.
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At times like these, when Brexit and COVID-19 have combined to impact on the nation’s SMEs in a variety of different ways, this insight continues to attract a great deal of interest - and demonstrates that it’s not all doom and gloom. Read on for insights from our Q1 2021 report - and click here to read the report in full.
How are overall confidence levels changing?
SME CEOs are more confident than they have been at any point in the last two years. With the worst of COVID-19 in theory behind us, our overall confidence index figure stands at 129 in Q1 2021 - up from 79.5 in Q1 2020.
Vistage Managing Director (UK), Geoff Lawrence, puts this increased confidence down to the UK’s incredible vaccine rollout. He states, “We anticipate that although there is a long way to go before businesses can recover to pre-crisis levels, there is every indication that UK and Irish businesses can come back stronger and better.”
What are SMEs’ predictions for the economy?
The general feeling amongst our Confidence Index respondents is that overall economic conditions in the UK and Ireland have worsened over the last 12 months. 46% believe this to be the case, with 31% stating that they have improved, and 21% saying that they have remained about the same.
While GDP shrank by 19.5% between April and June 2020, recovery in the second half of the year was stronger than predicted. ONS data reveals that the UK economy expanded by 16.9% in Q3 and 1.3% in Q4, giving hope for a brighter 2021.
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This optimism is reflected in our Confidence Index, with 76% of respondents stating that they believe UK and Ireland economic conditions will be better over the next 12 months - with 15% stating that they would be about the same, and 7% that we will be in a worse position than now. As a result of the emergence from lockdown and the speed of the vaccination programme rollout, the Bank of England is equally optimistic, upgrading its 2021 growth outlook to 7.25%, up from the 5% that was forecast in February.
Are SMEs planning to invest in their business?
With an increase in overall economic confidence comes a rise in appetite for business investment. When asked about their planned level of business investment, 55% stated that this was likely to increase, with 36% saying it would stay the same and just 5% expecting a decline. This compares with figures of 30%, 43% and 26% respectively in Q1 2020 - a marked increase in those planning to invest in their business operations this year.
Research from Aldemore Bank in April revealed that SMEs plan to make around £97,000 of business investments in 2021, both to bounce back from COVID-19 declines and to expand their business operations. This investment, the study reveals, will be across a number of different areas: the online or digital presence of the business for 25% of respondents, digital marketing for 20%, new equipment for 25%, staff training for 20% and diversification for 20% of respondents, with 10% stating that more sustainable or greener initiatives were their focus.
What do revenue growth expectations look like?
UK SMEs are generally optimistic about the year ahead when it comes to revenue growth. In our latest confidence index, 84% expected revenue to increase over the next 12 months, with 12% stating that they believed revenue would say the same, and 4% predicting a decline.
It appears that many SMEs are seeing a rebound from COVID-related revenue declines, with the proportion expecting an increase standing at double the figure from the same time last year: a time when just 42% expected revenues to rise over the following year.
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These figures echo those quoted by other industry sources: the Barclaycard Payments Barometer predicts an average 8% revenue growth for SMEs in 2021. However, the approach to tackling COVID-related business issues could well have an impact on likely growth. In mid-March, the UOB SME Outlook Study revealed that SMEs that digitalised in 2020 are more optimistic about the year ahead - and were also more likely already to have seen revenue growth.
Is talent a priority for 2021?
In short, yes. Planned growth requires the talent to manage it, and so 70% of SMEs plan to increase their workforce this year, with 25% saying it will stay the same, and 5% planning on reducing the size of their team. This paints a far more positive picture than our Q2 2020 Confidence Index, when just 24% stated their workforce was likely to grow, and 43% that it was likely to decline.
However, it is not just attracting qualified talent that is important - but nurturing and retaining them, too. 98% stated that creating a strong organisational culture was either very important or important, while over 94% place a similar emphasis on employee engagement. A further 94% stated that training and development is either very important or important to the success of their business going forward.
It is vital for employers that just as much focus is given to retaining staff as to bringing them on board. With more employers now starting to hire again post-lockdown, research from Personio reveals that 45% of employers are concerned that staff will leave. Economic analysis suggests that additional staff turnover costs over the next year could result in costs of up to £5.8bn for SMEs alone.
While the last year has been a struggle for many businesses - in all sizes and all sectors - there are more and more signs that the future is looking brighter than it has done in a long time. With confidence so high, we look forward to seeing how our members embrace the path out of lockdown.
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