Insurance group RSA recently outlined the biggest risks facing SMEs in the UK in its Future Impacts report (Nov 2016). They included rising business costs as a result of the higher price of imported goods and business rates, a slowdown in consumer spending hitting revenues and pressures on cashflow. The loss of a major client or buyer, a reduction in the capacity or abilities of the owner or senior manager, emerging technologies and a lack of available industry skills were other huge headaches.
Fellow insurer Allianz, also outlined further SME concerns in its Risk Barometer Report 2018. It found that the most pressing risk to SMEs, with turnovers of less than $250m, was the threat of business interruption, including disruptions in their supply chains. Cyber incidents such as data breaches and IT failure was the next biggest concern, followed by natural catastrophes, including floods.
Next in importance was adverse market developments such as intensified competition and new entrants – as well as changes in legislation and regulation. The potential impact of Brexit and growing unease around trade protectionism were other key concerns.
What emerged was a mix of both day-to-day business concerns and wider developments in the fields of technology, the economy and even society.
RSA advised SMEs to respond to the risks by regularly reviewing their business plans to ensure that they were up to date and still fitted in with current market conditions. They should also regularly review cashflow and access to capital and be aware of economic forecasts and market trends.
Cyber threats could be improved by investing in better security infrastructure, whilst training could help ease skill shortage pressures.
“There are perhaps well documented risks out there for SMEs, such as business continuity arising from unexpected events including leaving the European Union. But the most pressing ones will really depend on which sector they are in, such as electrification and mobility as a service in the auto sector, and also their own business models,” says Mark Swift, head of SME Programmes, WMG at the University of Warwick. “Companies are increasingly looking at their business models and finding ways to evolve them and become more sustainable or future-orientated. They are also looking to de-risk where necessary.”
He cites the example of a printer manufacturer which, responding to the threat of cheaper ink cartridges being available on Amazon, decided to update its business model and offer services. “Instead of your cartridge running out leaving you unable to print until you ordered online or went to a shop, this printer company created a connected digital solution which can predict exactly when you need a replacement,” he explains. “It has helped them get closer to customers and build trust and loyalty, essentially locking you into the brand. Understanding risk is understanding your business.”
Mark says other ways SMEs can protect against risk is through collaboration. “If your customer changes their requirements and, say, needs design work on top of the manufacturing you already do for them, then being a part of a partnership network can help you meet that need. SMEs can pool their skills in order to collaborate to compete and evade the business risk,” he explains.
Entrepreneur Lee McAteer, co-founder of Manchester-based Invasion Camp Group, which sends people to work at summer camps in America, Canada and Thailand and runs student holidays, identifies some of the above future business risks but also something much more personal.
“We are looking at ramping up investment, but we are still judging whether it will be the right thing for the business. We are also aware of the need to diversify our camp locations in case of country-specific issues hitting local trade,” he says. “But the biggest risk is me. I am spinning so many plates as we grow that I am concerned about keeping the personal touch with customers I value so highly.
“Also, can I ensure that my management team and staff have the same complete passion and enthusiasm for the business that I do? We all have to keep our eye on the prize.”
And on those ever-present risks.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.