Risk Avoidance ‘Stifling Growth for UK SMEs’

Five years of economic volatility and stagnation has resulted in the biggest behaviour shift in a generation for UK businesses, with many small and medium-sized enterprises (SMEs) shunning risk according to a study by The Economist Intelligence Unit (EIU) and commissioned by the insurance group Zurich.

The EIU’s research paper, entitled
‘Adapting in tough times: The growing resilience of UK SMEs’
, found that companies have adopted a ‘notable conservatism’, which in turn could be holding back economic growth. More than half of small businesses are spending more time analysing their strategy and focusing on risk management than they did before the financial crisis, the EIU said.

According to the research, 53% of SMEs surveyed are spending more time on their business strategy and risk management than they did before the financial crisis. The study also found that 35% are doing more long-term financial planning, and 33% are scrutinising their business continuity plans more frequently.

However, UK SMEs are also less opportunistic, with many no longer having the resources or morale to grow their operations. Small businesses risk appetite is no greater today than it was two years ago, as many have been waiting for an economic recovery before considering investing again.

“It’s great to see the increased sophistication and long term view of many SMEs but for [small employers] to drive growth, we need them to regain their appetite for controlled, calculated risk-taking,” said Richard Coleman, a director at Zurich. “In the face of such a challenging environment however, some are understandably reluctant to do so.

“This vicious circle is likely to play out until either the context for risk-taking decreases for UK SMEs, or the wider economy starts to show signs of rebounding. SMEs are essential to the UK business and economic environment, so ensuring that a balance exists between risk taking and risk prevention represents a significant economic and policy challenge today.

“In every market and economic cycle, there exist winners and losers; a natural process of organic firm failure, mergers and business acquisition. However, there now appears to be a growing and divergent turnover gap between these winners and losers. High performers are adapting their operational business model strategy – increasing potential competitive advantages in the long-term.”

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