Positive outlook for small firms in Wales despite continued tough trading environment

Profitability among small firms in Wales has risen thanks to lower costs, new figures released today suggest.

The latest Voice of Small Business Index produced by the Federation of Small Businesses suggests that profitability among Wales SMEs reached a high in the second quarter of 2015, with a net balance of 9.7% of Welsh business owners questioned reporting that profitability was up on the same point last year.

The outlook for the next three months is even more positive, with a balance of 16.9% expecting to see a rise in profitability.

But while profitability is on the up the balance of firms reporting rising revenues has fallen to +5.5%, suggesting that the trading environment remains challenging.

The key to the improvement in profitability appears to lie with low costs for SMEs thanks to falling inflation and lower prices for fuel. The balance of firms seeing cost increases crept up slightly on the previous quarter, but remains very low compared to the same point last year and any when compared to any other quarter in the last four years.

FSB Wales Policy Manager Dr Rachel Bowen said:

“This quarter’s survey suggests that low inflation is having a direct impact on the bottom line of smaller businesses in Wales.

“Although strong competition means our SMEs are not in a position to raise prices, many are benefitting from lower prices when it comes to costs such as fuel. This means that while many businesses have seen little improvement in revenues, a good balance of our members are looking increasingly positive about their current and future levels of profitability”

But while there was good news on the profitability front there was little change in the quarterly survey’s key headline measure of confidence among smaller businesses in Wales.

A balance of 21.9% expected conditions to improve rather than deteriorate over the coming months, only slightly down on the balance of 23% seen in the last quarter. That figure remains markedly below that for the UK as a whole, with a positive balance of UK businesses of 37.9% confident of better trading conditions. The confidence level seen in Wales was the second lowest of any of the nations and regions of the UK, with only the North East of England posting a lower figure.

The survey once again paints a bleak picture when it comes to job creation. For the fourth consecutive quarter a small balance of those Welsh SMEs questioned said they planned to reduce their headcount in the three months ahead.

Notably, small firms in Wales questioned for the survey were the least likely in the UK to identify rising labour costs as a major concern, suggesting weaker demand for workers in Wales.

FSB Wales Policy Chair Janet Jones said;

“Overall our latest survey suggests that while our members are generally confident about the future, levels of confidence among small business owners in Wales remain among the lowest in the UK.

“It is of particular concern that our surveys have pointed to an on-going trend of smaller firms in Wales being more likely to be cut back on staffing rather than taking on more people. If we are to see the Welsh economy recover more strongly, then we need the additional demand that would be created by more people in employment.

“Given that small firms are key to getting people into employment, there is clearly a need for policymakers in Wales to think seriously about how they can create an environment tailored to the local needs of our SMEs so that they can thrive and have the confidence to take people on.”