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December 21, 2010

Falling demand is business owners’ top concern for 2011, survey finds

The main challenge facing small businesses next year will be falling demand, triggered by the public sector cuts, research from Baker Tilly has highlighted.

The Outlook survey of more than 500 small-business owners found 48 per cent of small firms were concerned about a downturn in demand, 41 per cent were worried about competition from lower-cost competitors and 32 per cent cited concerns about the January VAT rise to 20 per cent.

Baker Tilly director, Matt Haw, said that many firms were worried that the government cuts would affect their sales. “If I was a small-business owner relying on the public sector, I would be very nervous indeed,” he said. “The impact of the cuts will flow into other industries as well. Linked to that, if there is less demand, the same firms are going to be fighting for the same customers.

“If you are a fixed-cost business, it’s probably better to lower your prices and retain turnover so you can meet them,” added Haw. “But if your costs are variable – for example, what you spend depends on your turnover – you might be far better off keeping your prices high and concentrating on quality and service delivery.”

Haw said that firms that are concerned about falling sales should make any necessary cuts as early as possible. “For example, if they need to cut overheads by laying off staff, they should do so while they can still afford the redundancy pay,” said Haw.

Commenting on respondents’ second biggest fear for 2011, low-cost competition, Federation of Small Businesses (FSB) spokeswoman, Prue Watson, said that firms which can’t compete on price should promote their value.

“Particularly with the VAT rise in January, it will be difficult for smaller businesses to compete with their larger competitors on price,” she said. “They should ensure they survive by highlighting their unique selling point, and by concentrating on making their existing customers feel valued by offering them exclusive deals. They should also make sure the service they offer is friendly and informal, in a way that big businesses can’t.”

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