Small businesses plagued by short-termism

Short-termism is reported to be gripping Britain’s increasingly-stressed small businesses.

Commercial insurer AXA has revealed that many firms are adopting short-term planning and cutting reliance on external funding ahead of Brexit.

Staying agile and light is a common strategy, but the insurer said this may not give enterprises the best chance of survival if financial cushions are not in place too.

AXA said it had found a sharp increase in financial anxiety among business owners.

Over the course of 2018, those reporting they felt chronically stressed about their firms increased by almost 50%, reaching a new total of almost three-in-10 by year-end.

While growth and hiring plans are down for 2019, the biggest pull-back is on funding – just 17% of owners of enterprises plan to invest in their business this year. This is a fall of 37% on 2015 when the total was 54% – the lowest figure in five years.

Far fewer are turning to banks, government or EU-backed schemes designed to help them too. Just 4.8% say they will seek funding from these sources – a threefold fall on 2015.

‘Under the radar’ finance is vastly preferred, as firms are now more likely to turn to family, friends, other small businesses and existing personal credit to fund growth.

Small enterprises are also tending to defer things like insurance, pensions, savings and business banking products – another sign that many are planning month-to-month rather than for the longer term.

AXA’s research found that:

• Three-in-10 small businesses have no insurance of any kind – a figure that has barely moved in five years. 
• Half of small firms have no way of getting ‘sick pay’ – either by having staff, sub-contractors or family members who can keep the enterprise going while they are absent, or in the form of a rainy day fund.
• Personal accident cover, which pays a monthly benefit to cover lost income during recovery following an accident, is taken up by just one-in-10 self-employed people.

Gareth Howell, executive managing director at AXA Insurance, said: “Our small businesses are showing signs of stress amidst the current uncertainty.

“Financial planning and tools are being rejected in favour of short-term workarounds – taking a job when cashflow drops, working through illness or not putting money aside for contingencies.

“This can make sense in the short term, but can undermine the business’s fitness for survival long term and leave people very vulnerable to shocks.

“Caution is understandable in these times, but ensuring you are financially fit now will be crucial to weathering any storms ahead.”

Support for small businesses

Aberdein Considine offer a full legal service for small businesses across Scotland.