Lack of export activity as SMEs fail to receive benefits of sterling depreciation post Brexit

The number of small businesses planning to expand their UK customer base has risen in the last year, from 42% to 51%, despite the post-Brexit fall in sterling making it cheaper for businesses to export internationally.

Our annual survey of owner managed businesses, finds that despite favourable economic conditions for exporters, only 17% of the 691 business leaders surveyed were very likely or certain to increase export activity during 2017, a figure consistent with the 17% that planned to do the same during 2016.

The increased focus on investment into the UK, rather than overseas, could indicate that small businesses are unlikely to feel as much of the positive impact of the fall in sterling post Brexit as big businesses.

Our research finds that, in order to expand their UK customer base, businesses may increase marketing efforts to target different demographics, or offer new products or services to attract new customers. In addition, 40% of the businesses surveyed planned to develop new products or services over the next year.

Increasing businesses’ online presence – whether through social media, or developing e-commerce offerings – is likely to be another key route owner managed businesses take to expand their customer base. By growing their online presence and focusing on domestic markets, owner managed businesses will have access to a much wider pool of customers rather than being limited to a particular region.

Mark Lamb, Head of Owner Managed Businesses, comments: “Owner managed businesses are growing in confidence and are increasingly looking to expand their businesses into new markets within the UK.

“Ensuring their online presence is up-to-date is a simple yet effective way of opening the business up to a wider range of customers, and developing new products and services will also enable businesses to target new demographics outside their usual customer base.

“Following the fall in sterling after the Brexit vote we might have expected there to be an uptick in export activity however, this has not been the case. Small businesses are still choosing to invest in the UK rather than expand their presence internationally.”

Despite an increase in businesses planning to expand their UK customer base, only 7% plan to open new sites or offices in the UK, compared to 10% last year.

Mark Lamb continues: “Many small businesses have faced pressure as costs to businesses rise following the introduction of the Living Wage, upwards pressure on business rates as well as the cost of imports and raw materials increasing following Brexit. Therefore, expansion plans which require a significant amount of capital have been put on hold.”

Strength of UK economy a key concern for owner managed businesses

Our survey revealed that 68% of owner managed businesses viewed the strength of the UK economy as a key threat to growth in 2017, compared to 52% in 2016.

The fall in the value of sterling meant that many owner managed businesses were negatively affected by the rising costs of imports and therefore how the UK economy will fare in the next year as Brexit negotiations begin remains a key concern.

Mark Lamb adds: “Owner managed businesses, with weaker negotiating powers, are much more susceptible to changes within their business environment than larger corporations.”

Another key threat to growth for the businesses surveyed was cyber-security and the threat of a data breach. 24% of businesses viewed a cyber-attack as a key concern. 

Mark Lamb continues: “Whilst larger corporations are often the target of high profile breaches, smaller businesses are increasingly at risk.

“A cyber-attack can be a significant cost to businesses, both financially and on reputation. Investing in cyber-security is therefore an additional expense that smaller businesses will need to budget for.”

To find out more about our solutions to some of the concerns noted above, please visit our owner managed businesses website here.

To download our 2017 owner managed business report entitled “Strength amidst uncertainty”, please visit our report website here.

 

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