Accelerated revenue growth forecast for Scotland’s SMEs

The Q2 2018 SME Growth Tracker reports that amongst Scotland’s small and medium-sized enterprises (SMEs) the Confidence Index score for their business has improved from -8 earlier this year to -5. The slight improvement contrasts with the overall score for the UK’s SMEs which has deteriorated from -6 to -8.

Confidence in business conditions has remained negative for Scotland’s SMEs since the UK general election in 2017, when it was at its lowest point (-16), and has not been positive since March 2017.

The quarterly report by Capital Economics, commissioned by Amazon UK and Enterprise Nation, assesses growth prospects and views on the broader UK economy from SMEs based on a YouGov survey of over 1,000 UK SMEs.

While Scotland’s small business owners are expecting conditions for their company to deteriorate, on average, over the coming year, expectations have improved during the course of the year, gaining 3 points from -8 in Q1 to -5 in Q2. Similarly, Scottish expectations for the UK economy have lifted 5 points from -29 in Q1 to -24 in Q2.

Revenue expectations for the coming year in Scotland are consistent with their views that business conditions will improve. SMEs in Scotland expect revenues to rise by 1.7 per cent over the coming year, after a 0.7 per cent rise in revenues over the past twelve months. Expectations are higher than the national average, where SMEs surveyed indicated growth of 0.4 per cent for the coming year.

“Scotland’s SMEs are currently among the UK’s most positive when it comes to revenue expectations and business conditions over the next 12 months,” said Doug Gurr, UK Country Manager, Amazon. “This optimism bodes well for the broader economy with a likely knock-on effect for job creation, investment and growth. So the more that can be done to boost Scotland’s SME business confidence and support their plans, the greater the benefits for Scotland’s economy.”

Over the past 18 months, Amazon has held Academies in Edinburgh and Glasgow, helping over 1,000 SMEs grow their businesses online. Small businesses and entrepreneurs across rural Scotland will also soon able to access free practical advice on growing their businesses online, thanks to a new Amazon Academy programme for rural SMEs being run in partnership with Scottish Enterprise and Scottish Development International.

Small business owners in all regions of the UK expect conditions for their company to deteriorate, on average, over the coming year. However, those in financial services and manufacturing expect business conditions to improve in the coming year, with SME Confidence Index scores of +3 and +6 respectively.

Revenue expectations for the coming year in these two sectors are consistent with their views that business conditions will improve. Manufacturing SMEs expect revenues to rise by 2.2 per cent over the coming year, after a 1.4 per cent rise in revenues over the past twelve months. SMEs in UK financial services saw revenues rise by 1.7 per cent over the past year and expect to see an acceleration to 1.9 per cent growth in the coming year.

What’s more, SMEs in the manufacturing and financial services sector are planning the greatest increase to investment in the year ahead. Manufacturing SMEs expect to increase headcount by 0.8 per cent next year and increase capital expenditure by 1.7 per cent, while financial services SMEs are planning for increased investment in these areas of 1.5 per cent and 0.6 per cent respectively.

Whilst exporting SMEs forecast export volumes over the coming year to increase by 0.5 per cent, SMEs who export to the EU forecast export volumes to the area to fall by 0.4 per cent over the coming year. A similar pattern is seen in expectations for export revenues. Exporting SMEs think that export revenues will increase by 0.3 per cent in the coming year after increasing by 0.2 per cent over the past year. Meanwhile, SMEs who exported to the EU in the past twelve months are forecasting their export revenue from the EU to fall by 0.7 per cent over the coming year, adding to a decline of 0.1 per cent over the past year.

“The result suggests EU export volumes and revenue from EU exports have declined in response to Brexit”, said Giles Derrington, Head of Policy, Brexit, International and Economics, techUK. “To ensure the success of all sectors, the Government must provide greater clarity on future trading arrangements, and act now to support entrepreneurs and SMEs in preparing for a post-Brexit world by them adopt and utilise the digital tools and services available to increase their productivity and boost their growth.”

This quarter, SMEs continued to expect Brexit to have a negative impact on most business indicators; but higher price inflation, increasing competition and cybercrime were all more commonly cited risks for SME business leaders over the coming year. Almost nine-in-ten SMEs said that each of these were ‘a risk’ to their business over the next 12 months.

Although the majority of SMEs surveyed this quarter said that they have not delayed any business decisions due to Brexit, three-in-ten (31 per cent) said they had. The number of SMEs delaying decisions due to Brexit increases to 41 per cent for those that export and to 44 per cent for SMEs that specifically export to the EU. The most commonly delayed business decision cited by SME business leaders concerned new hiring, followed by upgrading business tools and new capital raising endeavours.

“SMEs continue to be negative about the conditions their businesses face. The last time the index was positive was in March 2017, and there is little to suggest any improvement in the near-term from the latest batch of results,” added Mark Pragnell, Chief Project Economist at Capital Economics. Some of the negativity relates to concerns and uncertainties surrounding Brexit. Indeed, businesses are anticipating slight reductions in export volumes to the EU, and associated revenues. But other risks such as higher price inflation, increasing competition and cybercrime were more commonly cited.”

The SME Growth Tracker also finds that digital SMEs expect e-commerce revenue growth to rise by 1.0 per cent over the coming year, after it rose by 0.4 per cent over the past year. They also expect e-commerce to account for a greater share of revenue (36 pence in every pound) compared to the past year (33 pence in every pound). However, over half of SMEs surveyed (51 per cent) do not yet have a company website for selling goods or services. By comparison, 21 per cent of SMEs use a third party site for sales and this figure is expected to rise to 26 per cent of SMEs next year.