Business confidence among small businesses fell significantly in the first three months of the year with more than a quarter admitting they were less optimistic about business prospects in the next 12 months.
The results, contained in ISME’s Business Trends Survey for the first quarter, were significantly more pessimistic than the responses in the last quarter of 2006 when only 14 per cent said they were less optimistic about their business prospects.
The figure for those with a positive view of their business prospects for the next 12 months was down from 38 per cent at the end of 2006 to 27 per cent in the first quarter.
The survey, which got responses from more than 500 companies, found distribution and manufacturing companies were the least optimistic while the services sector was the most positive.
The survey also found many of the biggest immediate concerns for SMEs – labour costs, erosion of competitiveness, increased regulations – remained unchanged from the end of 2006 to the end of March.
Significantly, however, the number worried about economic uncertainty rose sharply from seven per cent to 18 per cent, putting it second only to labour costs. Inflation was also a significant concern to one in ten companies.
The sense of a downturn in mood was also reflected in a significant reduction in companies planning to increase employment in the next 12 months from 30 per cent at the end of 2006 to 18 per cent in the first quarter.
Companies planning to for increase investment were also down from 56 per cent to 44 per cent, although only four per cent were seeking to reduce investment.
In another worrying sign, 24 per cent said their sales/order books were below normal for this time of year. Order cancellations were partly to blame, the bulk of them (54 per cent) from local indigenous firms.
ISME claimed the level of order cancellations from local firms was as a result of their battle “against the rise in business costs and their inability to increase prices, due to stiff competition from cheap imports”.
Creditors are taking longer to pay and SMEs are also being affected by cost increases of ten per cent or more for energy, raw materials, transport and local charges.
ISME warned it was important not to talk the economy down but “the reality on the ground is that companies are finding conditions difficult in which to operate at present and this is reflected in the results of this latest survey”.
The organisation said a fundamental change in attitude towards smaller companies needed to take place and the sector needed to be recognised “for the significant contribution it makes to employment, revenues, economic growth, purchasing power and to society as a whole”.
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